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EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES - OXLEY ACT OF 2002 - Conforce International, Inc. | cfri10ka220090331ex31-1.htm |
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES - OXLEY ACT OF 2002 - Conforce International, Inc. | cfri10ka220090331ex31-2.htm |
EX-23.1 - AUDITOR CERTIFICATION - Conforce International, Inc. | cfri10ka220090331ex23-1.htm |
EX-32.1 - CERTIFICATION OF OFFICER PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 - Conforce International, Inc. | cfri10ka220090331ex32-1.htm |
EX-32.2 - CERTIFICATION OF OFFICER PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 - Conforce International, Inc. | cfri10ka220090331ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K /A
(amendment
no. 2)
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended March 31,
2009
|
Or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ____________ to
______________
|
Commission
file number 001-34203
Conforce
International, Inc.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
68-6077093
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
51A
Caldari Road
2nd
Floor
Concord,
Ontario L4K 4G3
Canada
(Address
of principal executive offices) (Zip Code)
(416)
234-0266
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Act: None
Securities
registered under Section 12(g) of the Act:
Title
of each class
to
be so registered
|
Name
of each exchange on which
each
class is to be registered
|
|
Common
stock, par value $0.0001
|
Over-the-Counter/Pink
Sheets
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o
No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes o
No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yesþ No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
o
|
Accelerated
filer
o
|
Non-accelerated
filer
o
(Do
not check if smaller reporting company)
|
Smaller
reporting company
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
o No þ
As of
March 31, 2009, there were 120,001,000 shares of our common stock issued and
outstanding with a market value of $0.17 per share as at September 30,
2008
DOCUMENTS
INCORPORATED BY REFERENCE
None.
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-2-
Conforce
International, Inc. is filing this Amendment No. 2 on Form 10-K/A (the
“Amendment”) to its Annual Report on Form 10-K for the year ended March 31,
2009, originally filed July 29, 2009 (the “Original Filing”) and the first
amendment filed on October 22, 2009 (“Amendment No. 1”) to amend and restate the
previously-filed consolidated financial statements for the years ended March 31,
2009 and 2008 (and related disclosures) and to correct other errors in the
originally filed report and Amendment No. 1. Accordingly, the following
sections have been amended: financial statements for the fiscal years ended
March 31, 2009 and 2008 contained in Part II, Item 8 of this Amendment
and conforming changes to the Business section contained in Part 1, Item 1
and Management’s Discussion and Analysis of Financial Condition and Results
of Operations contained in part II, Item 7 of this Amendment. In
addition the following sections have been amended to correct errors: ending
stock prices in Part II, Item 5 and Management’s report on Internal Control over
Financial Reporting contained in Part II, Item 9AT of this Amendment. The errors
were discovered after a change in auditors prompted management to conduct a
thorough review of its previously filed financial statements and its Form 10-K.
This
Amendment also contains currently dated certifications as Exhibits 23.1, 31.1,
31.2, 32.1 and 32.2 hereof. In order to preserve the nature and character of the
disclosures set forth in the Original Report, except as expressly noted above,
this report speaks as of the date of the filing of the Original Report, July 29,
2009, as amended on October 22, 2009, and we have not updated the disclosures in
this report to speak as of a later date. All information contained in this
Amended Report is subject to updating and supplementing as provided in our
reports filed with the SEC subsequent to the date of the Original
Report.
PART
I
BUSINESS
DEVELOPMENT
Conforce
International, Inc. is a Delaware corporation headquartered in Concord, Ontario,
Canada. Unless otherwise noted, references in this 10K report to “Conforce
International, Inc.,” “Conforce,” “CFRI,” the “Company,” “we,” “our” or “us”
means Conforce International, Inc. Our principal place of business is
located at 51A Caldari Road, 2nd Floor, Concord, Ontario L4K
4G3 Canada. Our telephone number is (416) 234-0266.
Management
of Conforce has been in the shipping container business repairing, selling
or storing containers for over 25 years. The Company operates a Container
Terminal through Conforce 1 Container Terminals, Inc. (“Conforce 1”). Conforce 1
provides complete handling and storage of marine shipping containers to its
client base of International shipping lines. The container depot has
a capacity of over 5,000 containers. Its fully integrated software
system allows shipping line customers on-line access 24/7 to create bookings,
view container inventory and status, and to print standard and customizable
reports. Full service features include empty and loaded container lift on-off
services, short and long term storage for empty and loaded containers, on-site
container-reefer vendors for container repair services, 460V plugs for
continued container temperature control while stationed at the terminal, on-site
fuelling and steam cleaning, and container modifications to client
specifications. The Container Terminal is the Company’s primary source of
revenue. The Company generates revenues as a result of charges assessed to
shipping lines for the lifting and handling of their empty containers while
stored at the Container Terminal until their next use. The Container Terminal
also charges for related services such as the abovementioned fueling and power
stations for temperature controlled containers.
In
addition to the business of the container terminal as described above, the
Company has been engaged in the research and development of a polymer based
composite shipping container flooring product, EKO-FLOR.
EKO-FLOR
xcs, the first version of the product, was officially introduced to the
container industry on December 5, 2006 at the 31st annual Intermodal Conference
in Hamburg, Germany, the world’s leading shipping container event. Based on
the initial reception to the composite, the Company learned that the industry
was interested in a composite alternative, however, the product needed to weigh
less than the current wood standard. Based on this feedback, Conforce continued
to refine its product and as a result, it was able to introduce a lighter, less
expensive version, EKO-FLOR cs-2, in December 2007 at the Intermodal Show in
Amsterdam, Netherlands. Based on industry feedback related to the surface
coating, the Company continued to develop the product until it was able to
officially launch EKO-FLOR cs-4 in December 2008. Conforce introduced its latest
light-weight version to customers during a series of meetings held in
Hamburg, Germany, the location of the 2008 Intermodal Conference. These
meetings in December 2008, which were held in a designated boardroom
at the Hamburg Renaissance, were scheduled with shipping lines and
lessors who ranked in the top ten, in terms of volume purchases of new
build containers in their respective business segments. Of the potential
customers in attendance, only one had previously conducted dry-land testing of
the EKO-FLOR product at a production facility in China. Such testing was
conducted using internal methods consistent with random tests conducted on new
build containers equipped with wood floors. The companies in attendance were
solicited based on their on-going interest in the product and their willingness
during 2007 and 2008 to provide feedback to Conforce so that the
Company could make improvements to the product in the areas of weight
and surface coatings. During and following the meetings, orders
were placed for ocean-going trials of EKO-FLOR cs-4. (The difference in the
product versions described above has been more fully explained in the Principal
Products section of this document).
As a
result, EKO-FLOR cs-4 will be evaluated through ocean-going tests conducted
by shipping lines and container lessors. The Company expects that
approximately six hundred (600) EKO-FLOR cs-4 equipped containers will be in
circulation on or about October - December 2009 for final testing. The
Company originally expected to have its product in circulation for testing
between May and July 2009; however, final preparation as it relates to
production equipment, personnel and processes have caused the trial date to be
delayed as stated above. At this time, the Company does not expect any further
delays.
The
Company has also developed EKO-FLOR ms-1, a composite panel designed
specifically for use as shelving in United States Military special application
marine containers. Consistent with a Letter of Intent received by Conforce in
May 2008 from its military sub-contractor, Sea Box Inc., the first order from
Sea Box for ms-1was received in December of 2008. The order consisted of racking
for special application containers and will generate revenues in excess of 1
million USD over 12 months until January 2010. Shipments of ms-1 commenced in
January 2009.
-3-
In order
to help ensure the successful commercialization of EKO-FLOR, on February 2,
2009, the Company signed a definitive agreement with Bayer MaterialScience LLC
(“Bayer”) establishing a strategic partnership between Conforce and Bayer.
Bayer is one of the world’s leading polymer companies and is a division of Bayer
AG, a recognized leader in health care, nutrition and advanced materials. For
Conforce, the agreement provides key support in the areas of advanced material
and design analysis, efficient production practices, technical expertise and
know-how, and a global material supply chain consistent with the projected
requirements of EKO-FLOR. The goal of the Partnership is the
successful commercialization of EKO-FLOR through the use of advanced design and
material analysis, efficient production practices through on-going training and
support, and the logistical development of a material supply
chain. Conforce will produce or have produced on its behalf EKO-FLOR
profiles using Bayer Products (polyurethanes, polyurethane coatings and
polyurethane pultrusions). Bayer will receive samples of EKO-FLOR
produced by or on behalf of Conforce using Bayer Products for testing,
evaluation, determining and making any modifications to Bayer Products which
Bayer believes may improve the physical properties, appearance or processing of
EKO-FLOR. Bayer will allocate the know-how, technical expertise and
human resources Bayer deems necessary to assist with the setup and production of
EKO-FLOR trial orders and the establishment of a production facility in Asia,
if/when necessary. Such assistance will include the analysis of
current Conforce production processes in order to ensure a seamless transition
from local single-line production to scalable multi-line manufacturing in
Asia. Bayer will ensure that Conforce has access to an adequate
supply of Bayer products for production of EKO-FLOR and Bayer has provided and
will continue to provide economic assistance to Conforce towards the development
of EKO-FLOR. The term of this Agreement will be for a period of one (1)
year from the date first written above. This Agreement may be extended or
terminated by mutual agreement of the parties. Either party may terminate
this agreement at any time upon thirty (30) days’ written notice to the other
party with such termination to become effective at the conclusion of such thirty
(30) day period. However, all intellectual property rights as
explained under the Patents section will survive the termination of such
agreement. For Bayer, the agreement provides revenue through resin
supply to Conforce. As such, Conforce and Bayer will, at a later date to be
mutually agreed upon, enter into, execute and deliver definitive operational
agreements which may include multi-term material supply agreements and joint
development agreements. To-date, no such agreements have been signed that will
bind the Company at this time.
Conforce
and Bayer have collaborated on the design of the special application military
container panels, EKO-FLOR xts trailer flooring and cs 4 container
flooring. Bayer has contributed its technical expertise in
identifying and providing polyurethane resins that will maximize strength, while
minimizing weight. The combined collaborative efforts of Bayer and
Conforce have been ongoing from July of 2008 through the date of this
filing. Bayer’s role in the development of EKO-FLOR has been to
optimize the production process, including advice relating to the design of the
pultrusion production line and, as previously stated, advice concerning the
optimal polyurethane resin mix. Bayer has provided third-party
consultants, at its own expense, to design various components of the pultrusion
production line. In addition, it has provided Bayer employees at its
own cost to act as consultants and attend the Conforce production and
development centre in Ontario for purposes of overseeing the configuration of
the pultrusion production line and fabrication of the EKO-FLOR
panels. Bayer has provided economic assistance to Conforce in two
ways: (1) Bayer has incurred the cost of certain components used in
the pultrusion production line and certain development costs associated with the
production of the special application military container panels; and (2), as
previously stated, Bayer incurred the cost of certain third-party consultants
and provided Bayer employees at its own cost to act as
consultants. There are no specific agreements in place pertaining to
the provision of any additional economic assistance by Bayer to Conforce in the
future. Although it is likely that Bayer will provide similar
economic assistance in the future, it is not possible to predict the precise
nature of such assistance at this time. To date, Conforce has paid
approximately $116,000 to Bayer in exchange for supplying resins to
Conforce. The amount that Bayer will receive from Conforce in the
future will depend upon the level of market acceptance of EKO-FLOR.
It is
important to note that all revenues up to December 31, 2008 were generated by
the container terminal operations, which was formed in November 2003 with first
revenues being recorded in April 2004. Research and development of EKO-FLOR has
been primarily funded by cash provided by the terminal operations. During the
quarter ended March 31, 2009, , the Company reported its first revenues from the
sale of EKO-FLOR shelving panels to its military contractor, Sea
Box.
The
results from operations of the Company’s two operating divisions are as
follows:
For the
year ended March 31, 2009, the Company’s Terminal division had revenues of
$1,553,540 with net income of $12,897, and the EKO-FLOR division had revenues of
$346,211 with a net loss of $391,127 Consolidated revenues were
$1,899,751 for the year ended March 31, 2009 with a total net loss of
$378,230.
PRINCIPAL
PRODUCTS
Conforce
is comprised of two separate and distinct operating divisions:
1. Conforce
1 Container Terminals, Inc. (“Conforce 1”) is a full-service container terminal
providing storage and handling for ocean-going containers.
Conforce
1 provides complete handling and storage of Marine shipping containers to its
client base of International shipping lines. The container depot has
a capacity of over 5,000 containers. Its fully integrated software
system allows customers on-line access 24/7 to create bookings, view container
inventory and status and to print a number of standard and customizable
reports.
The full
service features offered include, empty and loaded container lift on-off
services, container repairs through TRC, short and long term storage for empty
and loaded containers, EDI capability, on-site container-reefer vendors
for container repair services, 460V plugs for continued container
temperature control while stationed at the terminal, on-site fueling and steam
cleaning services and container modifications to client
specifications.
-4-
2. Conforce
Container Corporation is dedicated to the production, development and
commercialization of the new ISO1496 certified container flooring system,
EKO-FLOR.
EKO-FLOR
is a composite flooring system designed to replace plywood flooring in
shipping containers.
EKO-FLOR
xcs was the first version of the product developed. It was similar in weight to
apitong plywood at 304 kgs per 20 foot container.
EKO-FLOR
cs-2 was designed for use in general cargo applications. The product weighed
270kg per 20 ft. container.
EKO-FLOR
cs-4 was designed throughout 2008 as a result of evaluations and suggestions by
container industry participants. The product contains a new anti-slip top coat
surface jointly developed by Conforce and Bayer MaterialScience AG. The product
meets specified requirements in terms of the weight and forces exerted on the
product before failure occurs (“load bearing” or “load bearing
properties”). The product was tested by the American Bureau of Shipping using
standardized testing procedures for shipping containers. The primary test
involved exerting pressure on the floor by rolling a test cart with a weight of
7,260kgs on two 7” wide solid rubber tires. The second major test involved
lifting the container 6 - 12” off the ground while carrying 60,960kgs of cargo
(two times its maximum capacity of 30,480kgs per twenty foot
container). EKO-FLOR cs-4 will replace xcs and cs-2 and is
the version of the product that will be tested by customers in ocean-going
trials. The EKO-FLOR cs-4 panels are currently being produced at
Conforce’s own development center in Concord, Ontario.
EKO-FLOR
ms-1 has been developed as a load bearing shelving system for use in special
application United States military containers.
The
Company is currently having the ms-1 panels produced at a sub-contracted
facility in Quebec, Canada.
Please
refer to the Growth Strategies section for discussion of anticipated
revenues.
-5-
PRINCIPAL
COMPETITIVE STRENGTHS
Container
Terminal Division
Although
the terminal offers full service features as described in Item 1 above, such
features are offered by most terminals and are not considered a unique
competitive strength. The Company was able to enter the terminal business based
on its existing relationships with shipping lines through management’s business
dealings while formerly employed by TRC. Therefore, its main competitive
strength remains relationship driven as well as its focus on customer
service.
The
terminal can also accommodate temperature controlled containers, known as
reefers, as a result of its investment in a generator valued at approximately
$60,000.
PRINCIPAL
CHALLENGES
Container
Terminal Division
The
principal challenges related to the terminal business are customer retention in
a competitive environment and decreasing container traffic as a result of the
global economic downturn which has adversely affected storage and transportation
services required by international shipping lines. With respect to the latter,
the economy has caused terminal operators to aggressively reduce rates in an
attempt to increase traffic. This strategy is advantageous to terminals who may
offset the reduced margins with increased revenue from ancillary services such
as long-haul transport. For Conforce, reducing its rates cannot be offset and
will lead to reduced gross margin. The Company is currently estimating that
revenues and gross margin in the terminal operations division will decrease in
fiscal 2010.
In
addition to unsolicited rate reductions by terminal operators, shipping lines
have also requested rate reductions citing the global economy as the reason. The
Company will be forced to temporarily reduce such rates in order to retain the
business.
Another
challenge faced by the terminal is its geographic location. Being closer to
major rail yards such as Canadian National (CN) and Canadian Pacific (CP)
railways is an advantage. Of the four competitors described on page 9 of this
document, Conforce is the furthest from the major railways. More specifically,
the Conforce terminal is located approximately 50 kilometers from CN whereas the
Coyote terminal is approximately 8 kilometers from CN and 3 kilometers from
CP.
EKO-FLOR
Division
One of
the principal challenges faced by EKO-FLOR is the upfront premium. This hurdle
was significant when the product was first introduced to the industry in 2006,
however, the Company has been able to decrease the product price by over $200
per 20 foot container. The premium represents an increase of
approximately 15% or $290 to the total price of a 20 foot equivalent
container.
Another
challenge the Company will face will be the establishment of a manufacturing
facility in China. To do so, the Company will need to rely on strategic
partnerships with entities having expertise as it relates to business and
production practices in China. Currently, the Company uses a Canadian
sub-contracted facility for production of its military shelving
panel. For the production of cs-4 trial product, the Company will use
its own Development Centre in Concord Ontario, where two production lines
have been installed.
Based on
the current economic downturn, the Company may also face potential delays in
terms of first orders, should the outcome of the trials be
positive. Customers currently using wood products may be less
inclined or motivated to switch to composite flooring, EKO-FLOR, due to the
abovementioned premium and the overall fear of change in an economy where funds
are tight. The production of new build containers was approximately
2.75 million twenty foot equivalent units in 2008, new builds for 2009 are
expected to be significantly lower at 1 million units 1 and projections for 2010
are uncertain at this time.
1 Containerisation
International Magazine, March 2009, Available for subscribers only.
GROWTH
STRATEGIES
While
Conforce has a well established core business with regard to its container
storage terminal, it does not contemplate much, if any, growth in terminal
revenues. However, the Company’s EKO-FLOR container flooring system,
which is in the development stage, continues to exhibit significant growth
potential, e.g. ocean-going trials planned by international shipping
lines. The Company’s success depends to a significant extent on the
performance of a number of senior management personnel and other key employees,
including production and research and development personnel. The
success of Conforce continues to depend to a significant extent on its ability
to identify, attract, hire, train and retain qualified professional, technical,
production and managerial personnel.
In May of
2008 Conforce received a Letter of Intent (LOI) from a U.S. based Military
contractor, Sea Box, Inc., for the purchase of the Company’s newly
developed composite product, EKO-FLOR ms-1, designed exclusively for use as load
bearing shelving in special application United States Military shipping
containers. The LOI contemplates a renewable multi-year contract
whereby Conforce will provide product for a minimum of 10,000 special
application containers. In December 2008, the company received its first order
(firm commitment) in connection with the LOI for EKO-FLOR ms-1 from its US
military contractor, Sea Box, Inc. to provide the product for over 5,000
special application military containers, generating revenues in excess of 1
million USD. The Company is currently having the ms-1 panels produced at a
sub-contracted facility in Quebec, Canada. As previously stated,
Conforce will manufacture the cs-4 trial product at its Production and
Development Centre in Ontario. The production capacity of the
pultrusion production line situated in the Production and Development Centre is
currently limited to the production of the cs-4 trial product. Once
the trial product has been manufactured in full, the Company may produce the
ms-1 product itself at the Production and Development Centre in Ontario rather
than on a sub-contracted basis in Quebec.
The
Company has received firm trial orders for approximately 600 twenty foot
equivalent units, with a value of approximately $350,000,for its EKO-FLOR cs-4
composite container flooring system from various shipping lines and leasing
companies. Receipt of such $350,000 is for conducting of the ocean-going
trial (use of EKO-FLOR in the trial) by a shipping line or leasing
company. Depending upon the results of such trial, should such
shipping line and/or leasing company decide to place a firm commitment/purchase
order with Conforce, further revenues will be generated by Conforce as agreed to
in such firm commitment/purchase order. The amount of such revenues
is unknown by Conforce until receipt of such firm commitment/purchase
order. The EKO-FLOR cs-4 panels are currently being produced at
Conforce’s own development center in Concord, Ontario. Currently,
shipping lines will purchase approximately 60 – 65% of their fleets annually
while the balance will be leased. Therefore, leasing companies represent on
average approximately 40% of the annual purchases of new build containers. The
trials will consist of placing EKO-FLOR equipped containers loaded with various
types of cargo, to be determined at the discretion of the shipping lines, and to
have such loaded containers placed on ocean-going vessels to be transported on
routes also to be determined at the sole discretion of the shipping lines. The
success of the trials is determined not only by the securing of purchase orders
but also by what is gained or learned from the feedback provided by the shipping
lines.
-6-
It is
important to note that in the event the outcome of the trials are successful and
if the Company receives from its customers written orders for year one volume of
approximately 60,000 twenty foot equivalent units, then the Company intends to
establish an EKO-FLOR manufacturing facility in China. To do so, the Company
would require financing of $8 million to $10 million. Currently, there is no
such financing in place, nor are there any preliminary or final term sheets or
agreements in place in support of such financing. If and when Conforce receives
such written orders, it is at that time that various financing avenues will be
considered such as private placements or public
offerings.
Conforce,
along with any company doing business internationally, will be subject to
currency fluctuations and fluctuations in the applicable exchange
rate. Fluctuations in the exchange rate between the Chinese RMB and
the Canadian dollar could adversely affect the Company’s operational results as
well as the value of some Conforce assets and liabilities.
Moreover,
some of the Company’s material agreements may be governed by foreign law, e.g.
Chinese laws. Accordingly, should Conforce ultimately establish a
facility in China, the Company will engage competent Chinese legal counsel to
represent the Company and advise them with regards to Chinese licensing
registration or other regulatory requirements and policies prior to styling and
producing any material agreements. Additionally, some of the
Company’s material agreements may be governed by foreign law, e.g. Canadian
laws; however, there exists a strong parallel between Canadian laws and the laws
of the United States. Conforce is physically located in Concord,
Ontario, but is incorporated in the state of Delaware and subject to the laws of
the state of Delaware and the United States. Conforce has a resident
agent in Delaware who is identified and required to accept service of process on
behalf of Conforce and its Officers. Accordingly, service of process
is not made more difficult due to the location of Conforce’s
headquarters.
The
Company was organized under the laws of the State of Delaware. The Company’s
resident agent for service is Harvard Business Services, Inc., located at 16192
Coastal Highway, Lewes, Delaware 19958. Investors located in the United States
may effect service of process upon Harvard Business Services, Inc. and commence
legal proceedings in a United States Federal Court. Accordingly, it would not be
materially more difficult for a U.S. investor to commence a legal proceeding
against the Company notwithstanding the fact that certain material agreements of
the Company may be governed by Ontario law, its principal place of business is
located in Concord, Ontario and its Officers and Directors are residents of
Ontario.
Currently,
all agreements that are material to the business and affairs of the Company are
governed by jurisdictions within the United States or Canada. In the future, the
Company will ensure that all material agreements governed by jurisdictions
outside of the United States or Canada contain appropriate dispute resolution
mechanisms pertaining to the submission of all disputes to the Stockholm Chamber
of Commerce in Stockholm, Sweden. Any award rendered by this arbitration
tribunal is enforceable in accordance with the “United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (1958).” Therefore, as a
practical matter, although no assurances can be given, the legal infrastructure
of any particular foreign jurisdiction, while different from its United States
counterpart, should not present any risk to a Conforce investor who is a
resident of the United States or any significant impediment to the operation of
Conforce in any foreign jurisdiction.
The
production, in part, of EKO-FLOR products at third-party contracted facilities
immediately brings in to question the following: (i) quality control; (ii)
timely delivery of finished products; and (iii) quality and pricing of raw
materials, etc. Conforce management will conduct thorough and
complete due diligence investigations of any such third-party
contractor. Additionally, material contracts will be comprehensive,
strictly construed, and rigidly enforced.
The
Company intends to enter the North American highway trailer market with a
similar flooring product. The North American trailer product, EKO-FLOR xts, is
in the final development stage and the Company expects to be able to produce a
die specific for the trailer product by November 2009. Prior to
funding the remaining cost of development and dies, the Company will supply
existing cs-4 panels to trailer manufacturers for industry certification and
road trials in or around September 2009. By using its company owned production
facility in Canada the initial estimated cost of entry into the North American
highway trailer market is approximately $300,000. Should the outcome of EKO-FLOR
trials be successful, the Company’s production and development centre in
Concord, Ontario will be unable to satisfy the potential demands of the trailer
industry and therefore, the Company is considering the establishment of a
manufacturing facility in or around Indiana, which is considered the central
location for the manufacture of highway trailers for the North American market.
The total cost to establish such a facility is currently estimated to be $4.75
million to $5.50 million.
The
Company intends to develop flooring for the Cruise Line industry and has had
preliminary discussions with Carnival Cruise Lines. The Company expects to
produce a prototype panel for use as a replacement to teak wood currently used
on cruise ships. The Company does not expect to provide product if at
all, to Carnival until March of 2011. Total cost of entry into the decking
market for cruise lines is unknown at this time, however, the Company intends to
use net proceeds from the sale of EKO-FLOR cs-4 and ms-1 for the development of
the product.
The
Company plans to develop and commercialize a residential flooring application
that will further contribute to the development of the EKO-FLOR brand and will
enable the Company to capitalize on the significant “do-it-yourself” home and
cottage renovation market. The product will be designed for use on docks as
a replacement for wooden docks suffering deterioration due to continued exposure
to water, sunlight and general weather elements. EKO-FLOR decking would have
similar properties as those found in EKO-FLOR cs-4 and ms-1 but would not
require the same load bearing strength characteristics. The Company has not
developed a sales channel for this product as of yet, however, the Company’s V.P
of Product Development is also the technical chairperson for the National
Composites Council of Canada. The Company intends to rely on his expertise and
contact base as it relates to the development and commercialization of the
outdoor decking product. Prototypes of the product are scheduled for the second
quarter of 2010. Total cost of entry is estimated to be approximately $200,000.
Net proceeds from the sale of EKO-FLOR cs-4 and ms-1 will be applied to the
development of the product.
DISTRIBUTION
METHODS
The
Company intends to sell its products directly to International shipping lines
for use in newly manufactured containers through, either its internal sales
staff, broker/selling agents (of which it has 2 in Europe), and military
contractors (of which it has one in the USA, Sea Box). As of January 2009, the
Company began shipments of EKO-FLOR ms-1 to its aforementioned military
sub-contractor.
INDUSTRY
OVERVIEW
According
to Containerisation International Magazine, there were 3.9 million new
containers manufactured in 2007 (1).
Containers
are currently equipped with floors made from tropical hardwoods, the most common
being Apitong. The container industry is aggressively seeking a viable
alternative to hardwood. (2)
Regarding
the current state of the shipping container industry as a result of the recent
global economic downturn, it is important to note that new build volume in 2008
was projected to be 3.85 million 20 foot equivalent containers as of third
quarter 2008; however, due to a slowdown in the fourth quarter, actual 2008
annual production was approximately 2.75 million twenty foot equivalent
containers. Volume for the production of new containers is projected to be down
significantly in 2009 and is currently projected to be approximately 1 million
twenty foot equivalent containers. (3)
Shipping
rates are also expected to decrease, which could put additional pressure on
shipping lines as revenues and earnings decrease. According to Drewry Supply
Chain Advisors division director Philip Damas, “Demand is no longer sufficient
to absorb new vessel capacity. As a result of anemic growth and
over-capacity, container freight rates have fallen on several key routes, with
the notable exception of the transpacific, where carriers have withdrawn
substantial capacity. Shippers should expect container rates to decline by about
15 percent during the current down-cycle, although any reductions will also
depend on the level of fuel surcharges.” (4)
-7-
According
to a report published on December 8, 2008 by Deutsche Bank Research (5), the
long-term prospects for container shipping are favourable. The report states
that “Despite the current economic slowdown, container shipping is expected to
continue to be a growth sector (+7 to 8% p.a. until 2015).” The report states
that while it expects significant problems for shipping companies in the
short-term as a result of over-capacities and declining freight and charter
rates, the medium and long-term prospects remain intact. The report concludes
although “the crisis is severe, there is no reason [for the industry] to
panic.”
(1) Source:
Containerisation International Magazine article titled “Reach for the Sky,”
dated February, 2008. Available to subscribers only.
(2)
Source: World Cargo News article titled “Floors – the container’s Achilles
Heel,” dated January, 2007. Available to subscribers only; however, excerpts are
available online at no charge.
(3)
Source: Containerisation International Magazine article dated May, 2009.
Available to subscribers only.
(4)
Source: Logistics Management article titled “Ocean shipping/global
transportation: Economic slowdown is weighing on ocean carriers,” dated November
19, 2008. Available to the public for a nominal fee; however, excerpts are
available online at no charge.
(5)
Source: Deutsche Bank Research article titled “Prospects for container shipping
industry,” dated December 8, 2008. Available to the public at no
charge.
PRODUCT
DEVELOPMENT
The
Company has developed a composite container flooring product as an
alternative to the wood flooring currently used in the majority of containers in
circulation. The Company has received trial orders for EKO-FLOR cs-4 totaling
approximately 600 - 20ft equivalent containers. The Company expects that
ocean-going trials will be completed during calendar fourth quarter
2009.
The
Company has developed EKO-FLOR ms-1, a composite shelving
system designed for use in special application military containers.
The Company recently received an order from its US military contractor to equip
over 5,000 special application US military containers with EKO-FLOR ms-1. The
first order will generate annual revenues for Conforce in excess of $1
million.
COMPETITION
In terms
of competition for the Conforce 1 Terminal Division, the Company has identified
three similar container depots within a 50 km radius to the Conforce facility.
Each of these depots provide similar services as does Conforce, each competes
for the business of the international shipping lines. The first
competitor is ACS (Alrange Container Services) which has 2 smaller locations,
one in Toronto, Ontario and another in Mississauga, Ontario (both depots are
approximately 15 km. from the Conforce 1 depot) that when combined have a
slightly larger total capacity than Conforce. The second competitor
is Musket Transport whose main depot is located in Mississauga, Ontario,
approximately 2 km. from the Conforce 1 depot and their container capacity is
comparable to Conforce’s, but Musket Transport also has other locations, which
house trailers and reefers (the capacity of those locations is
unknown). The third competitor is P&W Transport whose depot is
located in Oakville, Ontario, approximately 5 km. from the Conforce 1 depot and
its capacity is slightly smaller than Conforce’s.
In terms
of competition for the EKO-FLOR Division, the Company is competing for a share
of the container flooring market that is currently dominated by the use of
tropical hardwood. The Company is unaware of any other hardwood, except tropical
hardwood, on the market that meets the strength requirements of ocean-going
containers. The customers being targeted are international shipping
lines utilizing ocean-going containers.
Singamas,
a container manufacturer, has developed a variation of a composite floor that it
is currently testing although the base composition is currently unknown to
Conforce.
BASF has
developed a prototype polymer/bamboo mix composite flooring product; however,
the Company is unaware of any industry trials currently in place or
scheduled.
Havco
produces a composite coated wood product for the highway trailer industry. The
coating is approximately 1mm thick while the remainder of the panel,
approximately 27mm, is wood. This differs from EKO-FLOR panels for both
containers and highway trailers as the EKO-FLOR composite flooring system is
100% wood-free.
PATENTS,
TRADEMARKS, LICENSES, FRANCHISES, ROYALTY AGREEMENTS
Patents
As it
relates to EKO-FLOR composite panels for containers and highway trailers, the
Company’s trademark agent, Blakes Cassels & Graydon of Toronto, Ontario, has
filed a provisional patent with the United States Patent and Trademark Office.
The Company is currently preparing similar patent applications for
filing, in Canada, China, Germany and Denmark.
Pursuant
to the Letter of Agreement in Connection with the Strategic Partnership Between
Conforce International, Inc. and Bayer MaterialScience LLC, Conforce will retain
all of its rights, including patent rights, to EKO-FLOR and to any developments
made solely by Conforce during the course of the strategic partnership.
Moreover, Bayer will retain all of its rights, including patent rights, to the
materials, compositions and formulations developed and/or supplied hereunder and
to any other developments made solely by it during the strategic
partnership.
In the
near future, Conforce and Bayer intend to enter into a definitive agreement
pertaining to the intellectual property rights relating to products that are
jointly developed. Pursuant to this agreement, Conforce and Bayer
will equally share the ownership of all inventions created by both
parties. Furthermore, all costs related to the procurement of patent
protection and any royalties or other forms of revenue derived therefrom, will
be shared equally between the two parties.
-8-
Trademarks
The
Company’s trademark agent has submitted EKO-FLOR trademark applications in
the USA, Canada, China and with the European member states.
Licenses,
Royalties and Supply Agreements
In 2005,
the Company entered into an Extrusion Supply Agreement with Royal Group
Technologies. However, since the execution of the aforementioned agreement, the
Company has elected to use pultrusion technology as opposed to extrusion
technology. Although the agreement has not been formally terminated, the Company
has no plans to produce its EKO-FLOR product using extrusion technology. A
termination fee was not paid by Conforce and the agreement will expire under its
natural terms and conditions in December 2010. In 2008, the Company entered into
a licensing agreement regarding the use of various patented technologies
pertaining to equipment and processes being relied upon in connection with the
manufacturing of EKO-FLOR. However, the Company has since altered its equipment
and production processes and as such, will no longer rely on the technologies
provided for in the aforementioned license agreement. A termination fee was not
paid by Conforce and the agreement will expire under its natural terms and
conditions in May 2015.
EMPLOYEES
Conforce
employs 12 fulltime employees. Four employees are primarily dedicated
to the EKO-FLOR division, while eight employees work primarily within the
container terminal division.
REGULATORY
MANDATES
No
industry specific governmental approvals are needed for the operation of the
Company’s businesses.
REPORTS
TO SECURITY HOLDERS
The
Company will make available free of charge any of its filings as soon as
reasonably practicable after it has electronically filed these materials with,
or otherwise furnished them to, the Securities and Exchange Commission
(“SEC”). The Company is not including information contained on its
website as part of, or incorporating it by reference into, this Form
10K.
The
public may read and copy any materials the Company files with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.
The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet
site (http://www.sec.gov) that contains reports, proxies and information
statements and other information regarding issuers that file electronically with
the SEC.
Not
applicable as Conforce is a smaller reporting company.
The
Company’s headquarters are located at 51A Caldari Road, 2nd Floor, Concord,
Ontario L4K 4G3, Canada. The annual lease cost of these premises
is $51,017. The Company has a container terminal located at 584 Hazelhurst Road,
Mississauga, Ontario, Canada. The annual lease cost of these premises is
$195,300. The Company has a 13,400 sq.ft production and development centre
located at 111 Romina Drive in Concord, Ontario. The annual lease cost of these
premises is $159,600.
The
Company is not a party to any litigation and, to its knowledge, no action, suit
or proceeding has been threatened against the Company. There are no material
proceedings to which any director, officer or affiliate of the Company or
security holder is a party adverse to the Company or has a material interest
adverse to the Company.
None.
-9-
PART
II
Conforce
is a publicly traded company on the Pink Sheets under the trading symbol
“CFRI.” The Company intends to apply for listing on the OTC Bulletin
Board at such time as it’s Forms 10 and 211 have been approved by the
appropriate regulatory agencies; however, there is no guarantee that the
Company’s application for listing will be accepted.
The
Company’s common stock has traded on the Pink Sheets of the National Quotation
Bureau under the symbol CFRI since September 15, 2005. The following table sets
forth the high and low sale prices for the Company’s common stock for the
periods indicated. The prices below reflect inter-dealer quotations, without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
March
31, 2009
|
Low
price
|
High
price
|
||||||
Year
ended
|
$
|
0.05
|
$
|
0.20
|
||||
Quarter
ended
|
$
|
0.10
|
$
|
0.15
|
HOLDERS
OF RECORD
The
Company has 34 registered shareholders of record.
DIVIDEND
POLICY
The
Company has never declared or paid any cash dividends on its common stock and it
does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings, if
any, to finance operations and the expansion of its business. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be based upon the Company’s financial condition,
operating results, capital requirements, plans for expansion, restrictions
imposed by any financing arrangements and any other factors that the Board of
Directors deems relevant.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
None.
UNREGISTERED
SALE OF SECURITIES
None.
ISSUER
PURCHASES OF EQUITY SECURITIES
None.
Not
applicable as Conforce is a smaller reporting company.
Safe
Harbor Act Disclaimer for Forward-Looking Statements
Certain
statements in this document may contain words such as “anticipates,” “believes,”
“could,” “estimates,” "expects," "intends," “may,” “projects,” “plans,”
“targets” and other similar language and are considered forward-looking
statements. These statements are based on management’s current expectations,
estimates, forecasts and projections about the success of its container terminal
operations, its newly developed container and trailer flooring products, as well
as certain other composite based flooring products in various stages of
development. These forward-looking statements are subject to important
assumptions, risks and uncertainties which are difficult to predict and
therefore the actual results may be materially different from those
discussed.
-10-
OVERVIEW
The
Company operates in two reportable business segments; Container Terminal, and
EKO-FLOR. The Container Terminal operations are organized as Conforce 1
Container Terminals, Inc., which is a 50.1% owned subsidiary of the
Company. The remaining 49.9% is owned by Marino Kulas, Conforce International,
Inc President & CEO. The Conforce 1 subsidiary is responsible for all
container terminal operations. EKO-FLOR is organized as Conforce Container
Corporation (“CCC”), a 100% owned subsidiary of the Company. The
CCC subsidiary is responsible for the development, manufacturing and
marketing of the Company’s EKO-FLOR products. Operations for CCC during the
reportable periods to date have been limited to research and development as
the product is in the testing stages. Its EKO-FLOR products have evolved
systematically with various refinements, as previously noted, based on industry
standards and various feedback received. Accordingly, though in the
development stage and having generated no revenue to date, Conforce has informed
shipping lines and leasing companies of its product, EKO-FLOR,
and the Company is optimistic about its prospects due to the fact
that it is being tested in various ocean-going trials and receipt of the Sea
Box, Inc. purchase order.
An
advisory agreement between Worldwide Associates, Inc. (“Advisor”) and Conforce
is in place and as such, Advisor has and continues to provide the Company with
advisory services as it relates to general business items such as sales,
marketing, financing, infrastructure enhancements and public company
management. Alexander P. Haig, Managing Director of Advisor has
attended customer meetings with executives from Conforce, including various
meetings held in Hamburg, Germany in December 2008. Pursuant to the agreement,
Advisor is to provide Conforce consultation services and advice regarding
general corporate strategy, new business development, potential acquisitions or
partnerships and financial strategies. The term of the agreement is
in effect until April 2, 2010 and is renewable upon mutual agreement by the
parties for addition one-year periods. The agreement may be
terminated by either party upon 90 days written notice to the other
party. Conforce agrees to compensate Advisor for its services by
distributing to Advisor one percent (1%) of all gross revenues derived from
transactions in which Advisor’s involvement or introduction results in the sale
of services or products of Conforce, including EKO-FLOR. Conforce will reimburse
Advisor for any extraordinary expenses and Advisor agrees not to disclose any
confidential or proprietary information owned by, or received by or on behalf of
Conforce. To date, no fees have been paid by Conforce to Advisor
under this agreement.
Regarding
the revenues generated by the terminal operations, the Company reports revenues
as a result of lifting and handling containers that are stored in the
Company's container depot. Storage charges typically do not apply as the Company
performs these services for only empty containers. In the event that
a container loaded with goods is stored at the terminal, then a nominal
daily storage rate is charged. These handling and lifting services are performed
by the Company and are not sub-contracted to any third
parties. Regarding the revenues generated by transportation services
in the operations of the Container Terminal division, the Company provides
sub-contracted transportation services for containers arriving or departing
to and from Canadian rail yards. Such sub-contracted services are arranged
by the Company at the request of its shipping line customers and are
facilitated through the use of local transportation companies. The Company
charges a surcharge for arranging such shipments and is paid directly by
the shipping lines. In turn, the Company pays the sub-contracted transportation
companies.
The
principal challenges related to the terminal business are customer retention in
a competitive environment and decreasing container traffic as a result of the
global economic downturn which has adversely affected storage and transportation
services required by international shipping lines. With respect to the latter,
the economy has caused terminal operators to aggressively reduce rates in an
attempt to increase traffic. This strategy is advantageous to terminals who may
offset the reduced margins with increased revenue from ancillary services such
as long-haul transport. For Conforce, reducing its rates cannot be offset and
will lead to reduced gross margin. The Company is currently estimating that
revenues in the terminal operations division will decrease by approximately 30%
in 2009 while gross margin will be reduced by approximately 5%.
In
addition to unsolicited rate reductions by terminal operators, shipping lines
have also requested rate reductions citing the global economy as the reason. The
Company will be forced to temporarily reduce such rates in order to retain the
business.
Another
challenge faced by the terminal is its geographic location. Being closer to
major rail yards such as Canadian National (CN) and Canadian Pacific (CP)
railways is an advantage. Of the four competitors described on page 9 of this
document, Conforce is the furthest from the major railways. More specifically,
the Conforce terminal is located approximately 50 kilometers from CN whereas the
Coyote terminal is approximately 8 kilometers from CN and 3 kilometers from
CP.
For the
year ended March 31, 2009, the Company's Container Terminal business
segment had revenues of $1,553,540 with net income of
$12,897. For the same period, the Company's EKO-FLOR business
segment had revenues of $346,211 and a net loss of
$391,127.
PLAN OF
OPERATIONS
In 2009,
the Company’s primary focus will be on the commercialization of EKO-FLOR. With
the introduction of EKO-FLOR revenues as a result of ms-1 panel orders, the
reliance on the container terminal will decrease. Accordingly, the Company
intends to pursue opportunities as they relate to three EKO-FLOR products (as
described below). While the container terminal is expected to continue to
provide revenues and moderate earnings, if any at all, growth in the terminal
operations is not expected. Expansion for Conforce is expected to come from
EKO-FLOR ms-1 in 2009 and cs-4 in 2010, where the Company believes that
notwithstanding the current economic slowdown, significant growth potential
exists due to the pressing need for composite flooring within the industry.
Should the container industry in 2010 collectively produce one half of its 2007
new build volume of 3.9 million twenty foot equivalent containers, the Company
would still experience significant growth assuming it is able to meet
expectations of orders totaling approximately 60,000 units or approximately 2%
of global new build volume.
EKO-FLOR cs-4: Trial product
will be shipped to customers in or around October 2009. Trial completion times
may range from 60 – 120 days depending on sea routes and frequency selected by
trial customers, in their sole discretion. Conforce estimates that most trials
will be completed in the fourth quarter of calendar 2009. The EKO-FLOR cs-4
panels are currently being produced at Conforce’s own development center in
Concord, Ontario.
EKO-FLOR xts: In the third
quarter of calendar 2009, the Company intends to introduce EKO-FLOR xts to the
North American highway trailer industry. The Company will offer a modified
version of its cs-4 container panel in order to commence actual over-the-road
testing by industry participants. The Company expects that over-the-road
EKO-FLOR xts testing will commence in or around September 2009.
Provided
that the aforementioned trials are successfully completed and that the outcome
is positive, the Company expects that it will secure EKO-FLOR cs-4 and EKO-FLOR
xts orders for 2010. It is the belief of management that Conforce will receive
such orders, however, there is no assurance that it will secure these orders or
generate any sales revenue at all. Provided that EKO-FLOR cs-4 volume
commitments are secured and that such commitments are in-line with Conforce
expectations of 60,000 - 80,000 TEU for calendar 2010, then the Company will
begin the process of formalizing the details of a financial offering intended to
adequately capitalize the establishment of a company owned facility in Asia. As
such, the Company would require financing of 8 – 10 million USD. Currently,
there is no such financing arrangement in place, nor are there any preliminary
or final term sheets or agreements in support of such financing. If and when it
receives such written orders, the Company will explore various financing
alternatives including private placements, public offerings and debt financings.
The final details pertaining to such financing will depend upon prevailing
market and economic conditions. However, there are no guarantees that the
Company will be able to obtain such funding under reasonable terms, if at
all.
EKO-FLOR ms-1: In 2010, the
Company also expects, as a result of the Sea Box, Inc. purchase order, to
receive equivalent orders to those received in 2009 for EKO-FLOR ms-1, a
variation of the cs-4 flooring panel designed for use as load bearing shelving
panels in special application military containers. The Company is currently
producing the ms-1 panels at a sub-contracted facility in Quebec, Canada. It is
the belief of management that Conforce will receive these orders, however, there
is no assurance that it will secure such orders or generate any sales revenue at
all.
The Company intends to apply for listing on
the OTC Bulletin Board at such time as its Forms 10 and 211 reach the no-comment
stage by the appropriate regulatory agencies, however, there is no guarantee
that the Company’s application for listing will be accepted.
-11-
LIQUIDITY
AND CAPITAL RESOURCES
The
Company intends to raise, either through an Initial Public Offering of its
securities or a Private Placement, the capital required for the establishment
and operation of a multi-line EKO-FLOR manufacturing facility in Asia, which is
currently estimated to be between $8 million and $10 million. The
Company will make the decision in terms of its production expansion into Asia at
such time as the trials of EKO-FLOR cs-4 are completed (currently projected to
be completed in or around December 2009) and if it has received a firm
commitment(s) from shipping line(s) and/or leasing companies for the production
of EKO-FLOR cs-4.
The
Company does not currently have any outstanding lines of credit or letters of
credit. Conforce does have a business development loan through a
government sponsored program in the amount of CDN $250,000 (USD
$218,766)-payable over 10 years (due January 2019) bearing a rate of interest of
prime + 3%. The agreement calls for monthly payments of $2,303
including principal and interest. The balance outstanding as at March 31, 2009
was $195,713. The current portion of this balance as at March 31, 2009 was
$17,785 and the long term portion was $177,928 as described in Note 9 of the
financial Statements. The loan was made through the small business development
loan program (SBL) and is limited in its use to the purchases of
equipment. Funds from the loan have been used to finance a portion of
the production equipment in the Company’s new development and production
facility in Concord, Ontario and such equipment has been used as collateral for
the loan. Under the rules governing SBL’s, in the event the Company
defaults on the loan, the Company is only responsible for repayment of an amount
equal to 25% of the total funds advanced.
The
Company does not have any agreements in place to fund the operations for the
next 12 months. Conforce is attempting to secure additional funding in the
amount of approximately $500,000, by way of non-interest bearing,
non-callable (for 10 years) loans from certain minority founding shareholders.
Such loans will be made to the Company from the proceeds of private transactions
with accredited investors involving the sale of Conforce common stock. To date,
the shareholder loans have been oral. At present, the Company intends
to enter into additional oral agreements pertaining to future shareholder loans.
Proceeds from these transactions will be used to fund any and all costs
associated with the production of trial product. It is important to note that
should the outcome of trials be favorable, the Company will be required to raise
significant additional capital for purposes of establishing an EKO-FLOR
manufacturing facility in China. Such capital requirement is currently estimated
to be $ 8 million to $10 million. The Company had received
loans, pursuant to oral agreements, from Marino Kulas, CEO and related parties,
equal to $567,633 as at March 31, 2009.
Investing
activities for the year ended March 31, 2009 included purchases of equipment
such as a pultrusion line, two dies and ancillary equipment for the Company’s
production and development centre totaling $623,595. Financing for the purchase
of this equipment was provided by related party loans payable , cash receipts
from terminal operations as well as the Small Business Development bank
loan.
-12-
RESULTS
OF OPERATIONS
YEAR
ENDED MARCH 31, 2009 COMPARED WITH THE YEAR ENDED MARCH 31,
2008
The
Company had gross revenues of $1,899,751 with a net loss of $378,230
for the year ended March 31, 2009, compared with sales of $2,364,335 with a net
loss of $147,178 for the year ended March 31, 2008. The decrease in sales was
due primarily to the downturn in the global economy and consequent decreased
demand for transportation services and container operations. Revenues for the
Terminal division for the year ended March 31, 2009 decreased by
34.3%. The decrease in revenues from the Terminal division was
partially offset by $346,211 in revenue generated from the EKO-FLOR
division.
During
the year ended March 31, 2008, the Container Terminal division was the only
revenue generating operation of the Company; however, during the year ended
March 31, 2009, the Company reported revenues from the sale of EKO-FLOR ms-1
military panels beginning in January 2009. Revenues of EKO-FLOR ms-1 for the
period January 1, 2009 to March 31, 2009 were $346,211.
The
results from operations of the Container Terminal division are as
follows:
For the
year ended March 31, 2009 the Company had revenues of $1,553,540 with net income
of $12,897, compared with revenues of $2,364,335 with net income of $101,882 for
the year ended March 31, 2008.
The
results from operations of the EKO-FLOR division are as follows:
For the
year ended March 31, 2009 the Company had revenues of $346,211 with net loss of
$391,127, compared with no income and a net loss of $249,060 for the year ended
March 31, 2008.
The
results of consolidated operations are as follows:
For the
year ended March 31, 2009, the Company had consolidated revenues of $1,899,751
with a net loss of $378,230 compared with consolidated revenues of $2,364,335
and a net loss of $147,178 for the year ended March 31,
2008.
The
Company had cost of revenues of $1,197,954 for the year ended March 31, 2009,
compared with cost of revenues of $1,274,111 for the year ended March 31, 2008,
a decrease in the cost of revenues from the prior period of $76,157. The
decrease in cost of revenues was attributable to a decrease in transportation
costs within the Terminal division, offset with the increase in cost of
products from the manufacturing of the EKO-FLOR product during the
year
Cost of
revenues as a percentage of sales was 63.1% for the year ended March 31, 2009,
compared with 53.9% for the year ended March 31, 2008. This increase is
almost entirely attributable to the manufacturing costs associated with the
EKO-FLOR products that required 100% outsourcing. Being the first
manufacturing run of this product the cost of manufacturing will improve with
future orders.
The
Company had gross profit of $701,797 for the year ended March 31, 2009, compared
with gross profit of $1,090,224 for the year ended March 31, 2008, a significant
decrease in gross profit of $388,427 or 35% over the prior period. The decrease
was due to the introduction of the EKO-FLOR product as mentioned
above.
The
Company had combined administrative $820,805, research and development $44,094,
depreciation $147,165 and other expenses of $12,408 for a total of $1,024,472
for the year ended March 31, 2009, compared to combined administrative $758,316,
research and development $178,125, depreciation $29,673 and other expenses of
$71,620 for a total of $1,037,734 for the year ended March 31, 2008, a decrease
in expenses of $13,262 or 1% from the prior period. Administration costs
increased with the additional focus and consequent allocation of resources to
the EKO-FLOR product. The research and development costs on the
EKO-FLOR product decreased as a result of the finalization of the development
and re-focus on marketing efforts during the year.
The
Company’s research and development costs include the creation of architectural
drawings as they relate to panel specifications, the creation of dies, the
manufacturing of test panels, the creation of specific panel testing equipment,
costs relating to independent certification testing, consulting costs associated
with utilizing process experts and engineers and costs associated with the setup
of the research and production center. The Company anticipates that research and
development costs will increase in fiscal 2010 as a result of final preparations
for the production of trial product, as well as costs associated with the
development of the highway trailer product.
The
Company further anticipates that ongoing research and development costs will
stabilize after fiscal 2010 and be maintained at a rate proportional to
sales.
The
Minority Interest in consolidated subsidiaries was $12,855 for the year ended
March 31, 2009 compared with $101,475 for the year ended March 31, 2008. This
amount portrays the 49.9% minority interest in Conforce 1 Container Terminals,
Inc., and decreased due to the decline in container terminal business during the
year.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company has not entered into any off-balance sheet arrangements that have or are
reasonably likely to have a current or future affect on its financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources and would be considered
material to investors.
-13-
LIABILITIES
The
Company had Accounts payable of $400,016 at March 31, 2009 compared to
$296,897 at March 31, 2008, an increase of
$103,119.
The
Company had related party loans payable to Marino Kulas, CEO, of $527,957
and a related party loan of $39,676 for a total of $567,633 as at March 31,
2009 compared with related party loans payable to the CEO of $426,347 as at
March 31, 2008.
The
amounts due to shareholder and amounts due to related party are unsecured,
non-interest bearing with no specific terms of repayment. The amounts
due to related parties arise from cash advances the shareholder and other
related parties made to the Company for the purchase of machinery and equipment,
primarily relating to the development of the composite flooring product and to
fund ongoing operating activities.
The loans
have been advanced at different increments depending on the needs of the Company
and repayment is not expected to occur until 2012. Given the long
term nature of these loans, each time an amount is advanced by the shareholder
or related party, a fair value calculation has been recorded with the discount
on the loan being charged to contributed surplus. The discount
to fair value assumes repayment will be made on March 31, 2012 with imputed
interest charged at rates between 6.5% and 10%. Imputed
interest was $30,010 (2008: $24,599)
Not
applicable as Conforce is a smaller reporting company.
The
financial statements required by Item 8 are submitted in a separate section of
this Form and are incorporated herein by this reference.
In August
2009, the Company was notified that Pollard-Kelly Auditing Services, Inc. were
permanently closing its offices and in effect resigning as the Company’s
auditors effective immediately. The Company has subsequently
appointed BDO Canada LLP, as its independent auditors. The Company
has not had any disagreements, whether or not resolved, with its
accountants on accounting and/or financial disclosures during its recent fiscal
year or any later interim period.
(a) Evaluation
of Disclosure Controls and Procedures
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
the end of the period covered by this Annual report, management carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as of March 31, 2009. Our principal executive
officer and principal financial officer have concluded, based on their
evaluation, that as of the end of the period covered by this report, our
disclosure controls and procedures were not effective as a result of the
material weakness in internal control discussed below.
(b) Management’s
Report on Internal Control over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. As defined in Rule 13a-15(f) under
the Exchange Act, internal control over financial reporting is a process
designed by, or under the supervision of, a company’s principal executive and
principal financial officers and effected by a company’s board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. It includes those policies and procedures that:
|
1.
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of a
company;
|
|
2.
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of a company are
being made only in accordance with authorizations of management and the
board of directors of the company;
and
|
|
3.
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or deposition of a company’s assets that
could have a material effect on its financial
statements.
|
Because
of the inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
The
Company’s management has used the criteria established in “Internal
Control-Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) to evaluate the effectiveness
of the Company’s internal control over financial reporting. Management has
selected the COSO framework for its evaluation as it is a control framework
recognized by the SEC and the Public Company Accounting Oversight Board, that is
free from bias, permits reasonably consistent qualitative and quantitative
measurement of the Company’s internal controls, is sufficiently complete so that
relevant controls are not omitted, and is relevant to an evaluation of internal
controls over financial reporting.
Management
of the Company conducted an evaluation of the effectiveness, as of March 31,
2009, of the Company’s internal control over financial reporting based on the
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the “COSO Framework”). Based on its
evaluation under the COSO Framework, management has concluded that the Company’s
internal control over financial reporting was not effective as of March 31,
2009 due to the material weakness noted below.
Identification
of a Material Weakness
Management
has identified a lack of accounting knowledge from the service providers
contracted to perform various accounting duties or offer guidance and direction
in the proper accounting and disclosure of transactions. This lack of
knowledge resulted in a number of errors in the previously reported financial
statements. Specific areas of concern that were noted include
the incorrect recording of transactions, a lack of timely reconciliations and an
absence of supporting schedules.
This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only management's report in this
Annual Report on Form 10-K.
c) Changes
in Internal Control Over Financial Reporting
There was
no change in our internal control over financial reporting that occurred during
the quarter ended March 31, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
However, subsequent to March 31, 2009, Management has engaged the services of a
chartered accountant, for a new internal financial controller function, and is
looking to further strengthen the finance and accounting group with a CFO and
qualified support staff.
Not
applicable.
-14-
PART
III
Set forth
below is information regarding the Company’s current directors and executive
officers. Marino Kulas and Slavko Kulas are first cousins. The directors are
elected annually by stockholders. The executive officers serve at the pleasure
of the Board of Directors.
Name
|
Age
|
Title
|
Marino
Kulas
|
43
|
President
& CEO, Director
|
Mario
Verrilli
|
43
|
Acting
Chief Financial Officer
|
Joseph
DeRose
|
53
|
VP
of Product Development
|
Kathryn
Saliani
|
55
|
Director
of Business Operations, Director
|
Slavko
Kulas
|
48
|
Director
of Terminal Operations
|
Marino Kulas, President &
CEO of Conforce International, Inc., has been in the container industry for over
25 years. In 2001, Mr. Kulas commenced research and development of
EKO-FLOR as an alternative to the wood flooring currently used in shipping
containers. In 2003 he started the business of Conforce 1 Container
Terminals Inc. and in 2005, he started Conforce Container Corporation, the
company responsible for the development of EKO-FLOR. He oversees all aspects of
the day-to-day operations of the business, while maintaining his primary focus
on the Company’s growth and direction through new product development and the
commercialization of EKO-FLOR through account acquisition.
Mario Verrilli, Acting Chief
Financial Officer. Prior to joining Conforce, Mr. Mario Verrilli held
the position of Senior Vice President, Global Operations for Omega Direct
Response Inc., a leading provider of outsourced call centre services. Prior to
Omega, Mr. Verrilli served as Director of Sales, Consumer Markets for Primus
Canada where he was responsible for the creation and ownership of acquisition
channels along with their respective P&L and operating budgets. Before
joining Primus, he worked with AT&T Canada, where he held the position of
International Settlement Analyst responsible for the settlement of financial
transactions, revenue reporting and the creation of revenue distribution models.
Mr. Verrilli started his career as a Revenue Analyst for Cadillac Fairview, a
commercial developer and management company, where he was responsible for the
accounting of revenue and expenses for a portfolio of shopping centres across
Canada.
Joseph DeRose, Vice President
of Product Development, is a chemical engineer and has dedicated his career to
the testing, development and technical support of plastic materials, composite
materials and polymer additives. Prior to his appointment with
Conforce in 2006, Mr. DeRose worked with industry leader Ciba Specialty
Chemicals (f/n/a Ciba-Geigy) for over 19 years (1981 through 2000), where he
held the position of Industry Manager of the Polymer Additives
Division. Following, through 2005, Mr. DeRose also held material
testing and analysis positions with the Ontario Research Foundation and
Cambridge Materials Testing. Most recently, Mr. DeRose provided
consultation and project coordination for manufacturers of plastic and composite
materials seeking building code recognition in both Canada and the United
States. Mr. DeRose is a member of The Society of Plastics Engineers
and serves on the Board of Directors of the Ontario Section. He is
also a member of the Canadian Plastics Industry Association and serves as
Technical Chair for the Canadian Natural Composites Council. For
Conforce, Mr. DeRose is responsible for the research, development, testing and
analysis of all new Conforce composite products currently in various stages of
development.
Kathryn Saliani, Director of
Business Operations. Prior to joining Conforce, Ms. Saliani worked as
an underwriter with a leading Mortgage origination firm in Canada for 3 years
(2003 through 2006). During 1988 through 2003, Kathryn performed as a
sole proprietor, providing administrative and bookkeeping functions for various
small companies. Prior to holding that position, Ms. Saliani worked
for Scotia Bank for 5 years (1982 through 1987) where she was responsible for
conducting branch audits in order to ensure compliance with loan policy and
procedure. Ms. Saliani also spent 12 years (1970 through 1982) with
the Workman Safety Insurance Board of Canada (WSIB) where she worked as Senior
Counselor to the office of the Chairman. Her responsibilities
included dispute resolution and to act as direct liaison between member
claimants and the WSIB. For Conforce, Ms. Saliani oversees Investor
Relations as well as all administrative functions of the Container Terminal
operations.
Slavko Kulas, Director of
Terminal Operations. Mr. Slavko Kulas has been involved in the
container industry for over 19 years. In 1989, he joined Toronto
Reefer Container (TRC), a Kulas private family business specializing in the
service and repair of ocean-going containers. Mr. Kulas’
responsibilities initially included the repair of all container components until
he was promoted to Manager of the company’s mobile fleet of service trucks and
personnel. In 1998, Mr. Kulas purchased TRC. In 2003, he
joined Conforce 1 Container Terminals where he served as Terminal Manager until
2008 at which time he became Director of Terminal Operations. For
Conforce International, Inc., Mr. Kulas is responsible for the day-to-day
operations of the Container Terminal and is a key member of the EKO-FLOR product
development team.
-15-
March 31, 2009 SUMMARY COMPENSATION
TABLE
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
Marino Kulas
President & CEO, Director
|
|||||||||
2009
|
86,500
|
86,500
|
|||||||
2008
|
111,400
|
111,400
|
|||||||
Joseph DeRose
VP of Product Development
|
|||||||||
2009
|
45,800
|
4,333
|
50,133
|
||||||
2008
|
39,200
|
70,935
|
110,135
|
||||||
Kathryn Saliani
Director of Business Op.,
Director
|
|||||||||
2009
|
44,500
|
44,500
|
|||||||
2008
|
48,500
|
48,500
|
|||||||
Slavko Kulas
Director of Terminal Op.
|
|||||||||
2009
|
24,500
|
24,500
|
|||||||
2008
|
31,000
|
31,000
|
The
following table lists stock ownership of the Company’s Common Stock. The
information includes beneficial ownership by (i) holders of more than 5% of
Common Stock, (ii) each of the four directors and executive officers and (iii)
all directors and executive officers as a group. Each person named in the table
has sole voting and investment power with respect to all shares of the Company’s
Common Stock beneficially owned by them.
-16-
Name
and Address of Owner
|
Title
of Class
|
Number
of
Shares
Owned
(1)
|
Percentage
of
Class
|
Marino Kulas
40 Bellini Avenue
Brampton, Ontario L6T 3Z8
|
Common Stock
|
60,541,000
|
50.45%
|
Elio Guglietti
28 Anthia Drive
North York, Ontario M9L
1K5
|
Common Stock
|
11,700,000
|
9.7500%
|
Michael Moyal
10520 Yonge St., Suite 298
Richmond Hill, Ontario L4C
3C7
|
Common Stock
|
9,017,502
|
7.51%
|
Slavko Kulas
8870 Martingrove Road
Woodbridge, Ontario L4H
1C2
|
Common Stock
|
4,800,000
|
3.99%
|
Joseph DeRose
60 Crofters Road
Woodbridge, Ontario L4L
7C7
|
Common Stock
|
353,333
|
0.294%
|
Kathryn Saliani
156 Beech Street
Brampton, Ontario L6V 1V6
|
Common Stock
|
50,000
|
0.0417%
|
Total
|
Common Stock
|
86,461,835
|
72.05%
|
Directors and Executive
Officers
|
Common Stock
|
60,944,333
|
50.78%
|
(1)
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities.
(2)
Marino Kulas recognized that Slavko Kulas’ extensive contacts and over 19 years
experience in the container industry made him an indispensible member of the
Company’s management team and determined that it would be in the best interests
of the Company and, by extension all Conforce shareholders, to complete the
above-described transfer of shares to provide Slavko Kulas with additional
incentive to achieve success in the commercialization of EKO-FLOR.
For the 12 month period ended March 31, 2009, Conforce had
a balance of loans outstanding from its founder and CEO and shareholder, Marino
Kulas in the amount of $527,957 and related party loans in the amount of $39,676
for a total of $567,676. No interest is payable under these loans,
however, they bear an imputed interest rate of between 6.5% and
10% These loans have no fixed terms of repayment. By
comparison, for the 12 month period ended March 31, 2008,
Conforce had a balance of loans outstanding from Marino Kulas on the
same terms in the amount of $426,347.
The audit fees for the fiscal year end March 31, 2009 were
$82,500. During such period, the Company did not incur any other
audit-related fees, tax fees or other fees. The audit fees for the
fiscal year end March 31, 2008 were $14,000.
-17-
PART
IV
Exhibit
|
|
No.
|
Description
|
2.0
|
Acquisition
Agreement and Plan of Merger dated May 24, 2005 (1)
|
3.1
|
Certificate
of Incorporation for Conforce International, Inc.
(1)
|
3.1.1
|
Certificate
of Incorporation for Conforce Container Corporation (1)
|
3.1.2
|
Certificate
of Incorporation for Conforce 1 Container Terminals, Inc.
(1)
|
3.2
|
Bylaws
(1)
|
10.1
|
Canada
Small Business Financial Loan dated November 26, 2008
(2)
|
10.2
|
Sea
Box, Inc. Purchase Order dated November 25, 2009
(3)
|
10.3
|
Letter
of Agreement in Connection with the Strategic Partnership Between Conforce
International, Inc. and Bayer MaterialScience, LLC. dated February 2,
2009 (3)
|
10.4
|
Advisory
Agreement between WorldWide Associates, Inc. and Conforce International,
Inc. dated April 2, 2007 (3)
|
(1)
Denotes previously filed exhibits: filed on February 9, 2009 with Conforce
International, Inc.’s 10-12G Registration Statement.
(2)
Denotes previously filed exhibits: filed on May 28, 2009 with Conforce
International, Inc.’s 10-12G/A Registration Statement.
(3)
Denotes previously filed exhibits: filed on June 29, 2009 with Conforce
International, Inc.’s 10-12G/A Registration Statement.
-18-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Conforce
International, Inc.
|
|||
March 2, 2010
|
By:
|
/s/ Marino
Kulas
|
|
Marino
Kulas
|
|||
President
& CEO
|
|||
-19-
Tel: 905 946 1066
Fax: 905 946 9524
www.bdo.ca
|
BDO Canada LLP
60 Columbia Way, Suite 300
Markham ON L3R 0C9 Canada
|
Auditors'
Report
To the shareholders of
Conforce International Inc.
We have audited the consolidated balance sheets of Conforce
International Inc. as at March 31, 2009 and as at March 31, 2008 and the
consolidated statements of operations, shareholders’ equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the 2009 and 2008 financial statements
referred to above present fairly, in all material respects, the financial
position of Conforce International Inc. as of March 31, 2009 and as of March 31,
2008 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have
been prepared assuming that Conforce International Inc. will continue as a going
concern. As more fully described in Note 2, the Company has incurred recurring
losses and its ability to continue as a going concern will depend on its ability
to generate positive cash flows from operations or secure additional financing.
There can be no assurance that the Company’s activities will be successful or
sufficient and these conditions raise substantial doubt about the Company’s
ability to continue as a going concern. The 2009 financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this
uncertainty.
Chartered Accountants, Licensed Public
Accountants
Markham, Ontario
February 24, 2010
-20-
Conforce International Inc.
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 2009 (restated) and 2008
(restated)
Conforce International, Inc.
CONSOLIDATED BALANCE SHEETS
March 31, 2009 and 2008 |
2009
|
2008
|
|||||||
(restated)
|
(restated)
|
|||||||
(see note 5)
|
(see note 5)
|
|||||||
Assets
|
||||||||
Current Assets
|
||||||||
Cash
|
$ | 72,232 | $ | 84,652 | ||||
Accounts receivable (note 6)
|
397,560 | 729,375 | ||||||
Inventory
|
64,276 | - | ||||||
534,068 | 814,027 | |||||||
Plant and equipment (note 7)
|
517,338 | 111,859 | ||||||
Intangible assets (note 8)
|
20,785 | - | ||||||
Non-current assets
|
16,176 | 4,155 | ||||||
$ | 1,088,367 | $ | 930,041 | |||||
Liabilities
|
||||||||
Current Liabilities
|
||||||||
Accounts payable and accrued
liabilities
|
$ | 400,016 | $ | 296,897 | ||||
Income taxes payable
|
84,601 | 53,845 | ||||||
Current portion of term loan (note
9)
|
17,785 | - | ||||||
502,402 | 350,742 | |||||||
Deferred rent
|
42,334 | 37,283 | ||||||
Related party loans payable (note
10)
|
445,508 | 303,280 | ||||||
Term loan (note 9)
|
177,928 | - | ||||||
1,168,172 | 691,305 | |||||||
Minority interest in consolidated
subsidiary
|
201,121 | 232,792 | ||||||
Shareholder's equity
(deficiency)
|
||||||||
Share capital (note 11)
|
9,157 | 9,157 | ||||||
Contributed surplus
|
340,684 | 283,259 | ||||||
Accumulated other comprehensive
income
|
39,049 | 5,114 | ||||||
Accumulated deficit
|
(669,816 | ) | (291,586 | ) | ||||
(280,926 | ) | 5,944 | ||||||
$ | 1,088,367 | $ | 930,041 | |||||
Going concern (note 2)
Commitment (note 12)
|
||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
-21-
Conforce International, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended March 31, 2009 and 2008 |
2009
|
2008
|
|||||||
(restated)
|
(restated)
|
|||||||
(see note 5)
|
(see note 5)
|
|||||||
Container service revenue
|
$ | 1,553,540 | $ | 2,364,335 | ||||
Composite product revenue
|
346,211 | - | ||||||
1,899,751 | 2,364,335 | |||||||
Cost of services
|
813,224 | 1,274,111 | ||||||
Cost of product revenue
|
384,730 | - | ||||||
1,197,954 | 1,274,111 | |||||||
Gross margin
|
701,797 | 1,090,224 | ||||||
Expenses
|
||||||||
General and
administrative
|
820,805 | 758,316 | ||||||
Research and development
|
44,094 | 178,125 | ||||||
Interest on term loan
|
2,165 | - | ||||||
Interest and bank
charges
|
1,017 | 685 | ||||||
Stock based compensation
|
4,333 | 70,935 | ||||||
Amortization of plant and
equipment
|
147,165 | 29,673 | ||||||
Amortization of intangible
assets
|
5,810 | - | ||||||
Gain on foreign exchange
|
(917 | ) | - | |||||
1,024,472 | 1,037,734 | |||||||
Income (loss) before non-operating
item
|
(322,675 | ) | 52,490 | |||||
Interest on related party loans
payable
|
30,010 | 24,599 | ||||||
Income (loss) before income tax and minority
interest
|
(352,685 | ) | 27,891 | |||||
Income tax expense
|
12,690 | 73,594 | ||||||
Net loss before minority
interest
|
(365,375 | ) | (45,703 | ) | ||||
Minority interest in consolidated
subsidiary
|
12,855 | 101,475 | ||||||
Net loss
|
(378,230 | ) | (147,178 | ) | ||||
Other Comprehensive income
(loss):
|
||||||||
Translation adjustment on foreign
exchange
|
33,935 | 5,114 | ||||||
Total comprehensive loss
|
$ | (344,295 | ) | $ | (142,064 | ) | ||
Loss per share - basic and
diluted
|
$ | (0.00 | ) | $ | (0.00 | ) | ||
Weighted average number of shares
outstanding
|
120,001,000 | 120,001,000 |
The
accompanying notes are an integral part of these consolidated financial
statements.
|
-22-
Conforce International, Inc.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the year ended March 31, 2009 and
2008
|
2009
|
2008
|
|||||||
(restated)
|
(restated) | |||||||
(see note 5) |
(see note 5)
|
|||||||
Operating activities
|
||||||||
Net loss
|
$ | (378,230 | ) | $ | (147,178 | ) | ||
Items not affecting cash
|
||||||||
Amortization of plant and
equipment
|
147,165 | 29,673 | ||||||
Amortization of intangible
assets
|
5,810 | - | ||||||
Imputed interest on related party loan
payable
|
30,010 | 24,599 | ||||||
Stock based compensation
|
4,333 | 70,935 | ||||||
Minority interest in consolidated
subsidiary
|
12,855 | 101,475 | ||||||
(178,057 | ) | 79,504 | ||||||
Changes in non-cash working capital (note
16)
|
383,584 | (96,210 | ) | |||||
Net cash provided by (used in) used in operating
activities
|
205,527 | (16,706 | ) | |||||
Investing activities
|
||||||||
Purchase of plant and
equipment
|
(623,595 | ) | (39,584 | ) | ||||
Investment in intangible
assets
|
(29,043 | ) | - | |||||
Increase in non-current assets
|
(14,297 | ) | - | |||||
Net cash used in investing
activities
|
(666,935 | ) | (39,584 | ) | ||||
Financing activities
|
||||||||
Proceeds from term loan
|
221,749 | - | ||||||
Repayment of term loan
|
(2,984 | ) | - | |||||
Advances from related parties
|
246,307 | - | ||||||
Net cash provided by financing
activities
|
465,072 | - | ||||||
Effect of foreign exchange on
cash
|
(16,084 | ) | 15,177 | |||||
Decrease in cash during the
period
|
(12,420 | ) | (41,113 | ) | ||||
Cash, beginning of the period
|
84,652 | 125,765 | ||||||
Cash, end of the period
|
$ | 72,232 | $ | 84,652 | ||||
Supplemental cash flow
information
|
||||||||
Cash
paid for interest
|
$ | 2,165 | $ | - |
The
accompanying notes are an integral part of these consolidated financial
statements.
-23-
Conforce International, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(DEFICIENCY) - RESTATED
For the years ended March 31, 2009 and 2008 |
Common Stock
|
Contributed
|
Accumulated
|
Accumulated
Other
Comprehensive
|
Total
|
||||||||||||||||||||
Shares
|
Amount
|
Surplus
|
Deficit
|
Income
|
||||||||||||||||||||
Balances at March 31, 2007
|
120,001,000 | $ | 9,157 | $ | 27,300 | $ | (125,077 | ) | $ | - | $ | (88,620 | ) | |||||||||||
Prior period adjustment
|
- | 185,024 | (19,331 | ) | - | 165,693 | ||||||||||||||||||
Restated balance March 31,
2007
|
120,001,000 | 9,157 | 212,324 | (144,408 | ) | - | 77,073 | |||||||||||||||||
Stock based compensation
(restated)
|
- | 70,935 | - | - | 70,935 | |||||||||||||||||||
Net loss (restated)
|
- | - | (147,178 | ) | - | (147,178 | ) | |||||||||||||||||
Translation adjustments
(restated)
|
- | - | - | 5,114 | 5,114 | |||||||||||||||||||
Balance as at March 31, 2008
(restated)
|
120,001,000 | 9,157 | 283,259 | (291,586 | ) | 5,114 | 5,944 | |||||||||||||||||
Stock based compensation
(restated)
|
- | 4,333 | - | - | 4,333 | |||||||||||||||||||
Gain on imputed interest (restated) (note
10)
|
- | 53,092 | - | - | 53,092 | |||||||||||||||||||
Net loss (restated)
|
- | - | (378,230 | ) | - | (378,230 | ) | |||||||||||||||||
Translation adjustment
(restated)
|
- | - | - | 33,935 | 33,935 | |||||||||||||||||||
Balance as at March 31, 2009
(restated)
|
120,001,000 | $ | 9,157 | $ | 340,684 | $ | (669,816 | ) | $ | 39,049 | $ | (280,926 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
-24-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
1.
|
DESCRIPTION OF
BUSINESS
|
The Company operates in two reportable business segments;
Container Terminal, and EKO-FLOR. The Container Terminal operations are
organized as Conforce 1 Container Terminals, Inc., which is a 50.1% owned
subsidiary of the Company. The remaining 49.9% is owned by Marino Kulas,
Conforce International, Inc President & CEO. The Conforce 1 subsidiary is
responsible for all container terminal operations. EKO-FLOR is organized as
Conforce Container Corporation (“CCC”) a 100% owned subsidiary of the Company.
The CCC subsidiary is responsible for the development, manufacturing and
marketing of the Company’s EKO-FLOR products. Operations for CCC during the
reportable periods to date have been limited to research and development as
the product is in the testing stages. Its EKO-FLOR products have evolved
systematically with various refinements, as previously noted, based on industry
standards and various feedback received.
The Company was incorporated on May 18, 2004 in the State
of Delaware as Now Marketing Corp. and on May 20, 2005 Conforce Container
Corporation was renamed from First National Preferred Card Service, Inc., which
was incorporated under the laws of the Province of Ontario on February 9,
2001. On May 25, 2005, the Company acquired Conforce Container
Corporation in exchange for 120,000,000 shares of the Company’s Common Stock,
making Conforce Container Corporation a wholly owned
subsidiary. Immediately prior to the acquisition, the Company had
1,000 shares of common stock issued and outstanding. The acquisition
was accounted for as a recapitalization of Conforce Container Corporation, as
the shareholders of Conforce Container Corporation controlled the Company upon
completion of the acquisition. Conforce Container Corporation was
treated as the acquiring entity for accounting purposes. There were
no adjustments to the carrying value of the assets or liabilities of the
acquired company or to the assets and liabilities of the acquiring
company. The Company was then renamed Conforce International Inc. on
May 25, 2005.
|
2.
|
GOING
CONCERN
|
These consolidated financial statements have been prepared
on the basis of United States generally accepted accounting principles ("GAAP")
applicable to a 'going concern', which assume that the Company will continue in
operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of operations. As at March 31,
2009 the Company had a net decrease in cash during the year and will continue to
require additional funding which, if not raised, may result in the curtailment
of activities. The Company has incurred net losses including $378,230 for the
year ended March 31, 2009 and has an accumulated deficit of $669,816 as at March
31, 2009. The Company's ability to continue as a going concern depends on its
ability to generate positive cash flow from operations or secure additional debt
or equity financing.
Management regularly reviews and considers the current and
forecast activities of the Company in order to satisfy itself as to the
viability of operations. These ongoing reviews include consideration of current
orders and future business opportunities, current development and production
activities, customer and supplier exposure and forecast cash requirements and
balances. Based on these evaluations management concluded that the Company is
able to continue as a going concern.
There can be no assurances that the Company's activities
will be successful or sufficient and as a result there is doubt regarding the
"going concern" assumption and, accordingly, the use of accounting principles
applicable to a going concern. These consolidated financial statements do not
reflect adjustments that would be necessary if the "going concern" assumption
were not appropriate. If the "going concern" assumption were not appropriate for
these consolidated financial statements, then adjustments to the carrying values
of the assets and liabilities, the reported revenues and expenses and the
balance sheet classifications, which could be material, would be
necessary.
-25-
Conforce
International, Inc.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
3.
|
SUMMARY OF SIGNIFICANT ACCOUTING
PRINCIPLES
|
Basis of Presentation
The accompanying consolidated financial statements have
been prepared in accordance with United States Generally Accepted Accounting
Principles (“GAAP”). All amounts are reported in U.S. dollars unless
otherwise stated.
In connection with the preparation of the March 31, 2009
financial statements, the Company noted a number of errors in previously
released financial statements. These errors impacted a number of
statements, refer to note 5 for a summary of the restatement of previously
reported financial statements.
Principles of Consolidation
The Consolidated financial statements include the accounts
of the Company and its wholly and partially owned subsidiaries. All
intercompany transactions and balances have been eliminated on
consolidation
Use of Estimates
The preparation of consolidated financial statements in
accordance with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
Significant estimates made by management of the Company
include, an estimate of applicable interest rate for related party loans
payable, uncollectible accounts receivable, and valuation allowances for
deferred income tax assets.
Cash
Cash consists of cash on deposit and is designated as
held-for-trading and carried at fair value. Changes in fair value are recorded
in earnings.
Trade Accounts Receivable
The majority of the Company’s accounts receivable are due
from large well established businesses. Credit is extended based on evaluation
of a customer’s financial condition and accounts receivable are typically due
within 30 days and are stated at amounts due from customers net of any
allowances for doubtful accounts. The Company determines its allowance for
doubtful accounts by considering a number of factors, including the length of
time trade accounts receivable are past due, the Company’s previous loss
history, the customer’s current ability to pay its obligation to the Company,
and the condition of the general economy and the industry as a whole. The
Company writes-off accounts receivable when they become uncollectable, and
payments subsequently received on such receivables are credited to the allowance
for doubtful accounts. Interest is not accrued on past due
receivables. As at March 31, 2009 and 2008, no accounts receivable
were considered at risk and the allowance for doubtful accounts was consequently
nil.
Inventories
Raw materials, work-in-progress and finished goods are
valued at the lower of cost, determined on a first-in first-out basis, and
replacement value.
Plant and Equipment
Plant and equipment are recorded at cost less accumulated
amortization and are amortized from the date of acquisition or, in respect of
internally constructed assets, from the time an asset is substantially completed
and ready for use. Amortization is computed using the declining
balance method as follows:
Office equipment
|
20% per annum declining
basis
|
|
Vehicles
|
30% per annum declining
basis
|
|
Machinery and equipment
|
20% per annum declining
basis
|
Leasehold improvements are amortized on a straight-line
basis over the term of the lease.
-26-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
The Company reviews the recoverability of the carrying
amount of plant and equipment when events or circumstances indicate that the
carrying amounts may not be recoverable. This evaluation is based on projections
of future undiscounted net cash flows. The total of these projected net cash
flows is referred to as the “net recoverable amount.” If the net recoverable
amount is less than the carrying value, the asset is written down to fair
value.
Intangible assets with finite useful
lives
The Company’s intangible assets consist of intellectual
property and are considered to have a finite useful life. As a result the
intangible assets are amortized on a 20% per annum declining
basis.
Management reviews the amortization method and useful life
estimate annually. The carrying amount of intangible assets are reviewed when
events or circumstances indicate that the carrying amount may not be
recoverable. This evaluation is based on projections of future undiscounted net
cash flows. The total of these projected net cash flows is referred to as the
“net recoverable amount.” If the net recoverable amount is less than carrying
value, the asset is written down to fair value.
Revenue Recognition
Service revenues are recognized when there is persuasive
evidence of an arrangement, services rendered, the amount is fixed or
determinable, and collection is reasonably assured. Revenue is
recorded net of any applicable sales and value added taxes and customer
discounts.
Product revenues are recognized when there is persuasive
evidence of an arrangement, goods have been delivered, the amount is fixed or
determinable, and collection is reasonably assured. Revenue is
recorded net of any applicable sales and value added taxes and customer
discounts.
Research and Product Development Costs
Research costs and costs incurred in applying for patents
and licenses are expensed as incurred. Product development costs are expensed as
incurred until the product or process is clearly defined and the associated
costs can be identified, technical feasibility is reached, there is an intention
to produce or market the product, the future market is clearly defined and
adequate resources exist or are expected to be available to complete the
project. To date, no product development costs have been
capitalized.
Stock-Based Compensation
The Company has agreements in place with certain senior
management to compensate them through the direct issuance of common
shares. To date, 353,333 common shares have been issued or accrued by
the current shareholders to management in satisfaction of these
agreements. These stock based payments have been expensed by the
Company over the period in which service has been rendered.
Income Taxes
Income taxes are recorded using the liability
method. Deferred income tax amounts arise due to temporary
differences between the accounting and income tax basis of the Company’s assets
and liabilities and the unused tax losses of the Company. Deferred income tax
assets and liabilities are measured using substantively enacted income tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of a change in income tax rates and laws is recognized in the period that
includes the date of substantive enactment. Deferred income tax assets are
recognized to the extent that realization of such benefits is considered to be
more likely than not.
Foreign Currency Translation
Transactions denominated in currencies other than the
Canadian functional currency are translated into Canadian dollars at the average
rate of exchange for the period.
For reporting purposes, assets and liabilities are
translated into US dollars at the period-end exchange rates, and the results of
its operations are translated at the average rate of exchange for the period.
The resulting translation adjustments are recorded in accumulated other
comprehensive income.
Net Loss Per Share
Net loss
per common share is presented in accordance with Statement of Financial
Accounting Standards No. 128,
Earnings Per share (“SFAS 128”). Basic loss per common share
is computed by dividing the net loss attributable to common shareholders by the
weighted average number of common shares outstanding during the
period. Diluted loss per common share is equal to the
basic loss per common share as there are no potentially dilutive securities
outstanding.
-27-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
4.
|
NEW ACCOUNTING
STANDARDS
|
In December 2007, the FASB issued FAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51 ",
("FAS No. 160"). FAS No. 160 requires (i) that non-controlling (minority)
interests be reported as a component of shareholders' equity, (ii) that net
income attributable to the parent and to the non-controlling interest be
separately identified in the consolidated statement of operations, (iii) that
changes in a parent's ownership interest while the parent retains its
controlling interest be accounted for as equity transactions, (iv) that any
retained non-controlling equity investment upon the deconsolidation of a
subsidiary be initially measured at fair value, and (v) that sufficient
disclosures are provided that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. FAS No.
160 is effective for annual periods beginning after December 15, 2008 and should
be applied prospectively. The presentation and disclosure requirements of the
statement shall be applied retrospectively for all periods presented. The
Company adopted FAS No. 160 on April 1, 2009 and there was no impact on its
financial statements. Retroactive application of FAS 160 will have an effect on
the presentation of the Company’s financial statements related to March 31,
2009.
In December 2007, the FASB issued Statement SFAS
No. 141 (revised 2007), “Business Combinations,” which replaces SFAS
No 141. The standard retains the purchase method of accounting for acquisitions,
but requires a number of changes, including changes in the way assets and
liabilities are recognized in the purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for the Company beginning
April 1, 2009 and will apply prospectively to business combinations
completed on or after that date.
In April 2008, the FASB issued guidance that amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset. The guidance
is effective for fiscal years beginning after December 15, 2008. Early
adoption is prohibited. The adoption of this standard is not expected to have a
material effect on the Company’s results of operations or financial
position.
In April 2009, the FASB issued guidance concerning interim
disclosures about fair value of financial instruments requiring publicly traded
companies to provide disclosure about the fair value of financial instruments
whenever interim summarized financial information is reported. Previously,
disclosures about the fair value of financial instruments were only required on
an annual basis. Disclosure shall include the method(s) and significant
assumptions used to estimate the fair value of financial instruments and shall
describe changes in method(s) and significant assumptions, if any, during the
period. This guidance was effective for interim and annual periods ending after
June 15, 2009, and, as such, the Company will include this disclosure with
its first quarter fiscal 2010 financial statements.
In May 2009, the FASB issued guidance regarding the
disclosure of subsequent events. This guidance made no changes to current
accounting but added required disclosures regarding the date through which the
Company has evaluated subsequent events and whether that evaluation date is the
date of financial statement issuance or the date the financial statements were
available to be issued. This guidance was effective, and will be adopted by the
Company, for interim and annual periods ending after June 15,
2009.
In June 2009, the FASB
approved the “FASB Accounting Standards Codification” (the “Codification”) as
the single source of authoritative nongovernmental U.S. GAAP to be launched on
July 1, 2009. The codification does not change current U.S. GAAP, but is
intended to simplify user access to all authoritative U.S. GAAP by providing all
the authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other
accounting literature not included in the Codification will be considered no
authoritative. The Codification is effective for interim and annual periods
ending after September 15, 2009. Adoption by the Company is not expected to
have a material impact on its consolidated financial position,
results of operation or cash flows.
-28-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
5.
|
RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL
STATEMENTS
|
In connection with the preparation of the March 31, 2009
audited financial statements, the Company noted a number of errors in the
previously reported March 31, 2009 financial statements and the comparative
financial statements for the year ended March 31, 2008. These errors
impacted a number of statements as summarized below:
Consolidated Balance Sheet
March 31, 2009
|
||||||||
As previously
reported
|
As restated
|
|||||||
Current assets
|
||||||||
Cash
|
$
|
49,353
|
$
|
72,232
|
||||
Accounts receivable
|
295,666
|
397,560
|
||||||
Inventory
|
-
|
64,276
|
||||||
Total current assets
|
345,019
|
534,068
|
||||||
Plant and equipment
|
590,840
|
517,338
|
||||||
Intangible assets
|
-
|
20,785
|
||||||
Non-current assets
|
32,922
|
16,176
|
||||||
Total Assets
|
$
|
968,781
|
$
|
1,088,367
|
||||
Current liabilities
|
||||||||
Accounts payable and accrued
liabilities
|
$
|
135,404
|
$
|
400,016
|
||||
Income taxes payable
|
-
|
84,601
|
||||||
Current portion term loan
|
2,303
|
17,785
|
||||||
Total current liabilities
|
137,707
|
502,402
|
||||||
Deferred rent
|
-
|
42,334
|
||||||
Related party loans payable
|
405,987
|
445,508
|
||||||
Term loan
|
193,430
|
177,928
|
||||||
Minority interest in consolidated
subsidiary
|
460,525
|
201,121
|
||||||
Shareholder’s equity
|
||||||||
Share capital
|
9,157
|
9,157
|
||||||
Contributed surplus
|
94,233
|
340,684
|
||||||
Accumulated other comprehensive
income
|
-
|
39,049
|
||||||
Accumulated deficit
|
(332,258
|
)
|
(669,816
|
)
|
||||
(228,868
|
)
|
(280,926
|
)
|
|||||
Total shareholder’s equity
|
$
|
968,781
|
$
|
1,088,367
|
|
a)
|
Cash was restated as a result of the reversing of a
cheque written in the period subsequent to the year end and to account for
the holding of USD denominated
balances.
|
|
b)
|
Accounts receivable was restated as a result of an
error in not recording the foreign exchange associated with holding
receivables denominated in a foreign currency and the correct accounting
for refundable Goods and Service Taxes resulting from the correction to
purchases and payments.
|
|
c)
|
Inventory was restated as a result of an error in
expensing raw materials that remained unused at March 31,
2009.
|
|
d)
|
Plant and equipment was restated as a result of
certain items being incorrectly capitalized or incorrectly expensed and
the use of an incorrect exchange rate in translating the balances at year
end.
|
|
e)
|
Intangible assets were restated as a result of
incorrectly expensing the items during the
period.
|
|
f)
|
Other assets were restated as a result of cumulative
errors from prior years and some amounts were expensed when
incurred.
|
|
g)
|
Accounts payable was restated as a result of
correcting the timing of the recognition of certain expenses that were
recorded in subsequent
periods.
|
|
h)
|
Income taxes payable has been updated to reflect the
changes made to the financial
statements.
|
|
i)
|
The current portion of the term loan payable was
restated to reflect the amount of the principle due to be repaid during
the following 12 month period rather than one month
period.
|
|
j)
|
Deferred rent has been updated to reflect the
straight line rent
calculation.
|
|
k)
|
Related party loans payable was restated due to the
cumulative effect of prior year’s errors and calculation of fair value
with the associated imputed interest for related party loans (now recorded
in contributed surplus) entered into during the
year.
|
|
l)
|
The long term portion of the term loan was restated
following the reclassification of the current portion of the term
loan.
|
|
m)
|
Minority interest was restated as a result of the
correction of prior period errors and adjustments reflecting errors noted
in the current year statement of operations for the consolidated
subsidiary.
|
|
n)
|
Contributed surplus was restated to reflect the
correct stock based compensation expense incurred in prior periods and to
account for the fair valuing of related party loans
payable.
|
|
o)
|
Accumulated other comprehensive income was restated
to reflect the correct accounting for the translation of the financial
statements from the Canadian functional currency to the US reporting
currency.
|
|
p)
|
Accumulated deficit was restated as a result of the
cumulative errors in the reporting of revenue and expenses for the period
ended March 31, 2009 and due to errors relating to years prior to March
31, 2009.
|
-29-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
Condensed Consolidated Statement of
Operations
March 31, 2009
|
||||||||
As previously
reported
|
As restated
|
|||||||
Revenues
|
$
|
2,021,389
|
$
|
1,899,751
|
||||
Costs of services and product
revenues
|
1,019,766
|
1,197,954
|
||||||
Gross profit
|
1,001,623
|
701,797
|
||||||
Expenses
|
||||||||
General and administrative
|
664,437
|
820,805
|
||||||
Research and development
|
277,761
|
44,094
|
||||||
Interest on term loans
|
-
|
2,165
|
||||||
Interest and bank charges
|
-
|
1,017
|
||||||
Stock based compensation
|
4,333
|
4,333
|
||||||
Amortization of plant and
equipment
|
64,248
|
147,165
|
||||||
Amortization of intangible
asset
|
-
|
5,810
|
||||||
Gain on foreign exchange
|
(36,829
|
)
|
(917
|
)
|
||||
973,950
|
1,024,472
|
|||||||
Income (loss) before income tax and minority
interest
|
27,673
|
(322,675
|
)
|
|||||
Interest on related party loans
payable
|
-
|
30,010
|
||||||
27,673
|
(352,685
|
)
|
||||||
Income tax expense
|
-
|
12,690
|
||||||
Net income (loss) before minority interest in
consolidated subsidiary
|
27,673
|
(365,375
|
)
|
|||||
Minority interest in consolidated
subsidiary
|
180,000
|
12,855
|
||||||
Net loss
|
$
|
(152,327
|
)
|
$
|
(378,230
|
)
|
||
Other Comprehensive loss
|
||||||||
Translation adjustment on foreign
exchange
|
-
|
33,935
|
||||||
Total comprehensive loss
|
$
|
(152,327
|
)
|
$
|
(344,295
|
)
|
|
a)
|
Revenues were restated as a result of the errors
noted in the March 31, 2008 year end, caused by the incorrect timing of
the recognition of invoices and by recording foreign currency transactions
in the nominal functional
currency.
|
|
b)
|
Cost of services and product revenue were restated as
a result of errors noted in the prior year, misclassification of invoices
to expenses other than costs of services and product revenue and errors in
capitalizing costs of sales or expensing items that should have otherwise
been expensed.
|
|
c)
|
General and administrative expenses were restated as
a result of errors in recording expenses in the applicable accounting
period, or misclassification of
expenses.
|
|
d)
|
Research and development costs were adjusted as a
result of the erroneous expensing of certain items that were capital in
nature, such as the acquisition of
equipment.
|
|
e)
|
Interest on the term loan was reclassified as a
separate item, where it had been incorrectly classified as General and
administrative costs.
|
|
f)
|
Amortization of plant and equipment was restated to
correctly calculate the appropriate amortization expense, in accordance
with the stated amortization policies, after reflecting the errors noted
in calculating the cost of capital
equipment.
|
|
g)
|
Amortization of intangible assets was restated to
reflect the set-up of intangible assets during the
year.
|
|
h)
|
Gain on foreign exchange was restated as a result of
an error in the treatment of the translation of the financial statements
from the Canadian functional currency into a US reporting
currency.
|
|
i)
|
Interest on related party loans payable was restated
as a result of the calculation of the imputed interest applicable to
discounting the loan to fair value using an estimated interest rate of
between 8.25% and 10%.
|
|
j)
|
Interest and bank charges was restated as a result of
the erroneous classification of this expense as General and Administrative
expenses.
|
|
k)
|
Income tax expense was restated to reflect the tax
provision applicable following the adjustments noted above and the
applicable tax rate applied on an entity-by-entity
basis.
|
|
l)
|
Minority interest in consolidated subsidiary was
restated as a result of the impact of the above-noted restatements on the
statement of operations of the consolidated
subsidiary.
|
|
m)
|
Translation adjustment to comprehensive income was
restated to reflect the correct accounting for the translation of the
consolidated financial statements from the Canadian functional currency to
the US reporting
currency.
|
-30-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
Consolidated Statement of Cash Flow
March 31, 2009
|
||||||||
As previously
reported
|
As restated
|
|||||||
Operating Activities
|
||||||||
Net loss
|
$
|
(152,327
|
)
|
$
|
(378,230
|
)
|
||
Items not affecting cash
|
||||||||
Minority interest in consolidated
subsidiary
|
180,000
|
12,855
|
||||||
Amortization of plant and
equipment
|
64,248
|
147,165
|
||||||
Amortization of intangible
assets
|
-
|
5,810
|
||||||
Stock based compensation
|
4,333
|
4,333
|
||||||
Imputed interest on related party loans
payable
|
-
|
30,010
|
||||||
Changes in non-cash working
capital
|
218,596
|
383,584
|
||||||
Net cash provided by operating
activities
|
314,850
|
205,527
|
||||||
Investing activities
|
||||||||
Purchase of plant and
equipment
|
(485,924
|
)
|
(623,595
|
)
|
||||
Investment in intangible
assets
|
-
|
(29,043
|
)
|
|||||
Increase in Other assets
|
(18,143
|
)
|
(14,297
|
)
|
||||
Net cash used in investing
activities
|
(504,067
|
)
|
(666,935
|
)
|
||||
Financing activities
|
||||||||
Proceeds from term loan
|
195,733
|
218,765
|
||||||
Advances from related parties
|
81,137
|
246,307
|
||||||
Net cash provided by financing
activities
|
276,870
|
465,072
|
||||||
Effect of exchange rate on
cash
|
(73,101
|
)
|
(16,084
|
)
|
||||
Net increase (decrease) in
cash
|
14,552
|
(12,420
|
)
|
|||||
Cash, beginning of year
|
34,801
|
84,652
|
||||||
Cash, end of year
|
$
|
49,353
|
72,232
|
|
a)
|
Net loss was restated to reflect the change in the
Statement of operations resulting from the errors noted
above.
|
|
b)
|
Items not affecting cash were restated as a result of
the errors noted above.
|
|
c)
|
Changes in the non-cash working capital were
restated, primarily as a result of the errors noted in the timing of the
recording of revenues and
expenses.
|
|
d)
|
Purchase of plant and equipment was restated to
correct the erroneous expensing of items that should have been capitalized
and capitalizing of items that should have been
expensed.
|
|
e)
|
Purchase of intangible assets was restated as a
result of the error noted in expensing an item that should have been
capitalized.
|
|
f)
|
Increases in other assets was adjusted to reflect the
cumulative effect of prior years adjustments and the additional deposit
for a facility the Company occupied during the last half of the fiscal
year.
|
|
g)
|
Proceeds from term loans was restated as a result of
the application of the average exchange rate between the US reporting
currency and the Canadian functional
currency.
|
|
h)
|
Proceeds from related party loans payable was
adjusted to reflect the receipt of the cash amount, net of any gain on
imputed interest.
|
|
i)
|
The effect of the foreign exchange on cash was
restated to recognize the use of an average foreign exchange rate for the
preparation of the Statement of Cash Flows and the balance sheet foreign
exchange rate for the Balance sheet
translation.
|
-31-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
Consolidated Balance Sheet
March 31, 2008
|
||||||||
As previously
reported
|
As restated
|
|||||||
Current assets
|
||||||||
Cash
|
$
|
34,801
|
$
|
84,652
|
||||
Accounts receivable
|
494,184
|
729,375
|
||||||
Total current assets
|
528,985
|
814,027
|
||||||
Plant and equipment
|
96,063
|
111,859
|
||||||
Non-current assets
|
14,779
|
4,155
|
||||||
Total Assets
|
$
|
639,827
|
$
|
930,041
|
||||
Current liabilities
|
||||||||
Accounts payable and accrued
liabilities
|
$
|
115,326
|
$
|
296,897
|
||||
Income taxes
|
-
|
53,845
|
||||||
Total current liabilities
|
115,326
|
350,742
|
||||||
Deferred rent
|
-
|
37,283
|
||||||
Related party loans payable
|
324,850
|
303,280
|
||||||
Minority interest
|
280,525
|
232,792
|
||||||
Shareholder’s equity
|
||||||||
Share capital
|
9,157
|
9,157
|
||||||
Contributed surplus
|
89,900
|
283,259
|
||||||
Accumulated other comprehensive
loss
|
-
|
5,114
|
||||||
Accumulated deficit
|
(179,931
|
)
|
(291,586
|
)
|
||||
(80,874
|
)
|
5,944
|
||||||
Total shareholder’s equity
|
$
|
639,827
|
$
|
930,041
|
|
a)
|
Cash was restated as a result of the transfer of a
number of stale dated cheques that had been issued to a shareholder for
payment of services rendered that were not going to be replaced, but
rather constituted a non-interest bearing amount due to the
shareholder.
|
|
b)
|
Accounts receivable were restated as a result of the
incorrect accounting of invoices which were booked subsequent to the
fiscal year but were in respect of services rendered in the fiscal year
ended March 31, 2008. In addition, a tax refund was received
subsequent to the year-end relating to prior periods and refundable Goods
and Services Taxes resulting from errors in the period of recognition of
revenues and expenses.
|
|
c)
|
Plant and equipment was restated as a result of an
incorrect exchange rate used in translating the balances at year
end. A historical exchange rate had been applied rather than
the year end exchange rate.
|
|
d)
|
Other non-current assets were restated to eliminate
amounts recorded as deposits for rental
property.
|
|
e)
|
Accounts payable were restated as a result of the
incorrect accounting for invoices that were recorded in the subsequent
period but related to services rendered during the fiscal year ended March
31, 2008.
|
|
f)
|
Income taxes payable has been updated to reflect the
changes made to the financial
statements.
|
|
g)
|
Deferred rent has been updated to reflect the
straight line rent
calculation.
|
|
h)
|
Related party loans payable was restated to account
for the imputed interest associated with the receipt of non-interest
bearing shareholder loans as a result of cheques that were not
cashed.
|
|
i)
|
Minority interest was restated as a result of the
adjustments noted above impacting the partially owned
subsidiary.
|
|
j)
|
Contributed surplus was restated to reflect the
correct stock based compensation expense incurred in the current and prior
periods and to account for the gain in the fair valuing of the related
party loans payable.
|
|
k)
|
Accumulated deficit was restated as a result of the
cumulative errors in the reporting of revenue and expenses and as a result
of errors for the period ended March 31, 2008 and for errors identified
that related to years prior to March 31,
2008.
|
-32-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
Consolidated Statement of Operations
March 31, 2008
|
||||||||
As previously
reported
|
As restated
|
|||||||
Revenues
|
$ | 2,364,945 | $ | 2,364,335 | ||||
Costs of services and product
revenue
|
1,293,100 | 1,274,111 | ||||||
Gross profit
|
1,071,845 | 1,090,224 | ||||||
Expenses
|
||||||||
General and administrative
|
663,391 | 758,316 | ||||||
Research and development
|
209,437 | 178,125 | ||||||
Interest and bank charges
|
- | 685 | ||||||
Stock based compensation
|
62,500 | 70,935 | ||||||
Amortization of property and
equipment
|
30,121 | 29,673 | ||||||
965,449 | 1,037,734 | |||||||
Other income and expense
|
7,285 | - | ||||||
Interest on shareholder loans
|
- | 24,599 | ||||||
Income from before income tax and minority
interest
|
99,111 | 27,891 | ||||||
Income tax expense
|
- | 73,594 | ||||||
Net income (loss) before minority
interest
|
99,111 | (45,703 | ) | |||||
Minority interest in consolidated
subsidiary
|
153,965 | 101,475 | ||||||
Net loss
|
$ | (54,854 | ) | $ | (147,178 | ) | ||
Other Comprehensive loss
|
||||||||
Translation adjustment on foreign
exchange
|
- | 5,114 | ||||||
Total comprehensive loss
|
$ | (54,854 | ) | $ | (142,064 | ) |
|
a)
|
Revenues were restated to reflect an error in
recording invoices for services rendered during the year ended March 31,
2008 in the subsequent year.
|
|
b)
|
Costs of services and product revenue were restated
as a result of errors in recording invoices for services received during
the year ended March 31, 2008 in the subsequent fiscal
year.
|
|
c)
|
General and administrative expenses were restated as
a result of errors in recording expenses in the correct accounting period
and the reclassification of expenses between
categories.
|
|
d)
|
Research and development costs were adjusted as a
result of the errors in recording invoices in the correct accounting
period and the reclassification of expenses between
categories.
|
|
e)
|
Interest on shareholder loans was restated as a
result of the calculation of the imputed interest applicable to
discounting the shareholder loan to fair value using an estimated interest
rate of between 8.25% and
10%.
|
|
f)
|
Amortization of plant and equipment was restated to
reflect the average exchange rate for the year ended March 31, 2008
instead of the historical interest rate applied at the time the assets
were acquired.
|
|
g)
|
Other income and expenses were restated as a result
of an error in the treatment of the translation of the financial
statements from the Canadian functional currency into a US reporting
currency.
|
|
h)
|
Income tax expense was restated to reflect that tax
provision applicable after the adjustments noted above were made and the
applicable tax rate applied on an entity-by-entity
basis.
|
|
i)
|
Minority interest in the consolidated subsidiary was
restated as a result of the impact of the above-noted restatements to the
Statement of Operations of the consolidated
subsidiary.
|
|
j)
|
Translation adjustment to comprehensive income was
restated to reflect the accounting for the translation of the Consolidated
financial statements from the Canadian functional currency to the US
reporting currency.
|
-33-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
Consolidated Statement of Cash Flow
March 31, 2008
|
||||||||
As previously
reported
|
As restated
|
|||||||
Operating Activities
|
||||||||
Net loss
|
$
|
(54,854
|
)
|
$
|
(147,178
|
)
|
||
Items not affecting cash
|
||||||||
Minority interest in consolidated
subsidiary
|
153,965
|
101,475
|
||||||
Amortization of plant and
equipment
|
30,121
|
29,673
|
||||||
Stock based compensation
|
62,600
|
70,935
|
||||||
Imputed interest on shareholder
loan
|
-
|
24,599
|
||||||
Changes in non-cash working
capital
|
(229,366
|
)
|
(96,210
|
)
|
||||
Net cash provided by (used in) operating
activities
|
(37,534
|
)
|
(16,706
|
)
|
||||
Investing activities
|
||||||||
Purchase of property and
equipment
|
(39,972
|
)
|
(39,584
|
)
|
||||
Net cash provided by (used-in) investing
activities
|
(39,972
|
)
|
(39,584
|
)
|
||||
Net cash provided by financing
activities
|
-
|
-
|
||||||
Effect of exchange rate on
cash
|
37,475
|
15,177
|
||||||
Net decrease in cash
|
(40,031
|
)
|
(41,113
|
)
|
||||
Cash, beginning of year
|
74,832
|
125,765
|
||||||
Cash, end of year
|
$
|
34,801
|
$
|
84,652
|
||||
|
a)
|
Net loss was restated to reflect the change in the
Statement of Operations resulting from the errors noted
above.
|
|
b)
|
Items not affecting cash were restated as a result of
the errors noted above.
|
|
c)
|
Changes in the non-cash working capital were
restated, primarily as a result of the errors noted in the timing of the
recording or revenues and
expenses.
|
|
d)
|
Purchase of plant and equipment was restated to
reflect the errors in translating into a US reporting
currency.
|
|
e)
|
Increase in loans from related parties is restated to
reflect the cash received.
|
|
f)
|
The effect of the foreign exchange on cash was
restated to recognize the use of an average foreign exchange rate for the
preparation of the Statement of Cash flows and the balance sheet foreign
exchange rate for the Balance sheet
translation.
|
-34-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
6.
|
ACCOUNTS
RECEIVABLE
|
Accounts receivable for the year ended March
31:
2009
|
2008
|
|||||||
Trade accounts receivable
|
$ | 318,576 | $ | 692,008 | ||||
Goods and services tax
receivable
|
78,984 | 37,367 | ||||||
$ | 397,560 | $ | 729,375 |
Within the trade accounts receivable balances for 2009, 97%
of the balance is due from 4 customers. Within the trade receivable
balance for 2008, 98% of the balance due is from 3
customers.
|
7.
|
PLANT AND
EQUIPMENT
|
As at March 31, 2009, the net book value of the plant and
equipment is as follows:
Accumulated
|
||||||||||||
Cost
|
amortization
|
Net book Value
|
||||||||||
Office equipment
|
$ | 19,328 | $ | 6,958 | $ | 12,370 | ||||||
Vehicles
|
17,886 | 11,959 | 5,927 | |||||||||
Machinery and equipment
|
655,821 | 169,421 | 486,400 | |||||||||
Leasehold improvements
|
22,120 | 9,479 | 12,641 | |||||||||
$ | 715,155 | $ | 197,817 | $ | 517,338 |
As at March 31, 2008 the net book value of the plant and
equipment is as follows:
Accumulated
|
||||||||||||
Cost
|
amortization
|
Net book Value
|
||||||||||
Office equipment
|
$ | 23,728 | $ | 4,746 | $ | 18,982 | ||||||
Vehicles
|
21,958 | 11,562 | 10,396 | |||||||||
Machinery and equipment
|
120,239 | 58,708 | 61,531 | |||||||||
Leasehold improvements
|
27,155 | 6,205 | 20,950 | |||||||||
$ | 193,080 | $ | 81,221 | $ | 111,859 |
|
8.
|
INTANGIBLE
ASSETS
|
Accumulated
|
||||||||||||
Cost
|
amortization
|
Net book Value
|
||||||||||
Trade marks
|
$ | 25,983 | $ | 5,198 | $ | 20,785 |
There were no intangible assets as at March 31,
2008.
-35-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
9.
|
TERM
LOAN
|
In November 2008, the company entered into a loan agreement
in the amount of CAD $ 250,000 under the Canada Small Business Financing
Act for the purchase of machinery and equipment to be used in the
manufacturing of the composite flooring. The loan is secured with a
first charge on the equipment purchased and a CAD $62,500 personal guarantee
provided by the CEO.
The term of the loan is ten years with interest at a
floating rate of prime + 3%. The minimum blended loan and repayments
for the next 5 years and thereafter, assuming, the floating interest rate
remains constant at 5.25%, is as follows:
Fiscal year ended March 31,
2010
|
$ | 17,785 | ||
2011
|
18,742 | |||
2012
|
19,750 | |||
2013
|
20,812 | |||
2014
|
21,932 | |||
Thereafter
|
96,692 | |||
Total amount payable
|
195,713 | |||
Less Current
portion
|
17,785 | |||
$ | 177,928 |
|
10.
|
RELATED PARTY LOAN PAYABLE AND RELATED PARTY
TRANSACTIONS
|
2009
|
2008
|
|||||||
Due to shareholder
|
$ | 527,957 | $ | 426,347 | ||||
Due to related party
|
39,676 | - | ||||||
|
567,633 | 426,347 | ||||||
Less: discount to fair value
|
(122,125 | ) | (123,067 | ) | ||||
$ | 445,508 | $ | 303,280 |
The amounts due to shareholder and amounts due to related
party are unsecured, non-interest bearing with no specific terms of
repayment. The amounts due to related parties arise from cash
advances the shareholder and other related parties made to the Company for the
purchase of machinery and equipment, primarily relating to the development of
the composite flooring product and to fund ongoing operating
activities.
The loans have been advanced at different increments
depending on the needs of the Company and repayment is not expected to occur
until 2012. Given the long term nature of these loans, each time an
amount is advanced by a related party, a fair value calculation has been
recorded with the discount on the loan being charged to contributed
surplus. The discount to fair value assumes repayment will be
made on March 31, 2012 with imputed interest charged at rates between 6.5% and
10%. Imputed interest was $30,010 (2008:
$24,599).
The Company rents three pieces of equipment on a month to
month basis from a company owned by a relative of the CEO. Rent
expense for the year ended March 31, 2009 was $66,927 (2008:
$10,562). Management considers the rental rate paid by the
Company to the related party to be at market rates.
The CEO
is the 49.9 % minority shareholder of Conforce 1 Container Terminals,
Inc.
-36-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
11.
|
SHARE
CAPITAL
|
Preferred Shares
At March 31, 2009 and 2008, the Company had authorized
5,000,000 preferred shares with a par value of $.0001 per share and may be
issued in designated series from time to time by one or more resolutions adopted
by the Board of Directors.
As at
March 31, 2009 and 2008 no preferred shares were issued and
outstanding.
Common Stock
At March 31, 2009 and 2008, the Company had authorized
250,000,000 shares of Common Stock at a par value of CAD $.0001 per
share.
As at March 31, 2009 and 2008 there were 120,001,000 shares
issued and outstanding.
Stock Transactions
On October 26, 2006, the Company entered into an employment
agreement (the “VP Employment Agreement”) with its Vice-President, Product
Development. The initial term of the VP Employment Agreement was
twelve months. Pursuant to the terms of the VP Employment Agreement,
a founding shareholder of Conforce agreed to provide 10,000 shares of his
personal Common stock per month for a twelve month period. In
addition, a founding shareholder of Conforce agreed to provide 200,000 of his
personal shares of Common Stock at the end of the employment term (i.e. October
26, 2007) Shares provided under the VP Employment Agreement during the year
ended March 31, 2008 totaled 270,000 and were valued at $70,935 and shares
provided during the year ended March 31, 2007 totaled 50,000 and were valued at
$50,665. These valuations were based on the trading value of shares
of the Common Stock on the date the shares were provided which in all cases
occurred on the same day.
On October 31, 2007, the Company entered into an extension
of the VP Employment Agreement for a period of twelve months, through October
31, 2008. In accordance with this extension, additional compensation
in the form of common stock of the Company would be granted if certain
performance criteria were satisfied in connection with the development of the
EKO-FLOR products. A founding shareholder of Conforce agreed to
provide the common shares required under the terms of this
extension. As at March 31, 2009 none of the performance criteria were
met, consequently, no additional shares of Common Stock were provided under the
VP Employment Agreement.
On October 31, 2008, the Company further extended its VP
Employment Agreement for an additional twelve months to October 31, 2009.
Under this extension, the Company agreed to provide 320,000 shares of common
stock at the end of the period provided certain performance criteria were
satisfied in connection with the development and commercialization of Eko-Flor
products. If required, a founding shareholder of Conforce has agreed
to provide the common shares in satisfaction of this
agreement. As at March 31, 2009, the performance criteria were
not satisfied in connection with the development of the Eko-Flor products and as
such, no common stock was transferred to the VP Product
Development. The agreement also provided for the granting
of an additional 80,000 shares of common stock at the end of the renewal period
(October 31, 2009) from a previous agreement for which the performance criteria
has been met. A founding shareholder agreed to provide these
additional common shares. As at March 31, 2009, a total of
33,333 common shares were expensed under this provision with a fair value of
$4,333 based on the trading value of shares as at March 31,
2009.
|
12.
|
COMMITMENTS
|
The Company leases office space under a five year lease
which runs through April 2012. Monthly lease payments are
$2,883.
The Company leases container terminal site space under a
lease which originally ran from April 2004 to March 2007. The lease was renewed
in April 2007 for an additional five year term to March 2012 with monthly lease
payments increasing by $3,514 to $14,641 per
month.
In December 2008, the Company entered into a three year
lease for its production and development centre site space. The monthly payments
are $9,350 and will commence in January 2009 and run until December
2011.
Future lease commitments are as
follows:
2010
|
$
|
294,094
|
||
2011
|
293,085
|
|||
2012
|
153,619
|
|||
2013
|
8,820
|
|||
$
|
749,618
|
-37-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
13.
|
INCOME
TAXES
|
The provision for income taxes for the years ended March 31
consists of the following:
|
2009
|
2008
|
||||||
Income tax
|
|
$
|
12,690
|
|
$
|
73,594
|
|
|
Deferred income tax expense
(benefit)
|
|
(81,390
|
)
|
-
|
||||
Change in valuation allowance
|
|
81,390
|
|
-
|
||||
Provision for income taxes
|
|
$
|
12,690
|
|
$
|
73,594
|
The reconciliation
of income tax expense (benefit) for the years ended March 31 computed combined
federal and provincial statutory rate to income tax expense (benefit) is as
follows:
|
2009
|
2008
|
||||||
Income tax expense (benefit) at combined statutory
tax of 33%
|
|
$
|
(116,386
|
)
|
9,204
|
|||
Permanent differences, net
|
|
22,306
|
|
72,992
|
||||
Adjustment of temporary differences to income tax
returns
|
|
-
|
|
(8,602
|
)
|
|||
Change in valuation allowance
|
|
81,390
|
|
-
|
||||
|
||||||||
Income tax expense
|
|
$
|
12,690
|
|
$
|
73,594
|
The significant components of the deferred tax accounts
recognized for financial reporting purposes are as follows:
|
2009
|
2008
|
||||||
Deferred tax assets:
|
|
|||||||
Net operating loss and other carry
forwards
|
|
$
|
31,848
|
|
$
|
-
|
|
|
Property and equipment
amortization
|
|
48,743
|
|
-
|
|
|||
Intangible asset amortization
|
|
799
|
|
-
|
|
|||
|
||||||||
Total deferred tax assets
|
|
81,390
|
|
-
|
|
|||
Valuation allowance
|
|
(81,390
|
)
|
-
|
||||
|
||||||||
|
$
|
-
|
$
|
-
|
As at March 31, 2009 the Company had net operating loss
carry forwards of approximately $244,170 for both Federal and Provincial tax
purposes, which expire in varying amounts between 2018 and 2019. The
Company’s net deferred tax asset has been offset by a valuation allowance of the
same amount. The valuation allowance has been recorded due to the uncertainty of
realization of the deferred tax asset.
-38-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
|
14.
|
FINANCIAL
INSTRUMENTS
|
In September 2006, the Financial Accounting Standards
Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a
framework for measuring the fair value of assets and liabilities. This framework
is intended to provide increased consistency in how fair value determinations
are made under various existing accounting standards that permit, or in some
cases require, estimates of fair market value. SFAS 157 also expands financial
statement disclosure requirements about a corporation’s use of fair value
measurements, including the effect of such measures on earnings. This standard
is effective for fiscal years beginning after November 15, 2007. The
Company adopted this new guidance effective April 1, 2008. This standard did not
change the Company’s consolidated financial position, results of operations or
cash flows. For non-financial assets and non-financial liabilities, the standard
is effective for financial statements issued for fiscal years beginning after
November 15, 2008. The Company plans to adopt this guidance effective
April 1, 2009. Conforce is currently assessing the effect this standard may
have on the Company’s results of operations and consolidated financial
position.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 is
expected to expand the use of fair value accounting but does not affect existing
standards which require certain assets or liabilities to be carried at fair
value. The objective of SFAS 159 is to improve financial reporting by providing
companies the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. Under SFAS 159, a corporation may choose,
at specified election dates, to measure eligible items at fair value and report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. SFAS 159, for financial
assets and financial liabilities, is effective for financial statements issued
for fiscal years beginning after November 15, 2007. The Company adopted
this new guidance effective April 1, 2008. This standard did not have a
material effect on the Company’s consolidated financial position, results of
operations or cash flows.
Fair Values
Generally accepted accounting principles require that the
Company disclose information about the fair value of its financial assets and
liabilities. Fair value estimates are made at the balance sheet date
based on relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties in significant matters of judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect these estimates.
The carrying value of cash, accounts receivable, accounts
payable and accrued liabilities approximates fair value due to the immediate or
short-term maturity of these instruments.
The fair value of the related party loans payable is
calculated assuming the amounts outstanding will be repaid on March 31, 2012 and
have imputed interest of between 6.5% and 10%.
The fair value of term loans is calculated based on
interest rates that are consistent with the current rates offered to the Company
for debt with similar terms.
Credit Risk
Credit risk arises from the potential that a counter party
will fail to perform its obligations. The Company is exposed to credit risk from
both customers and on amounts held on deposit in financial institutions. In
order to reduce its credit risk, the Company reviews a new customer's credit
history before extending credit and conducts regular reviews of its existing
customers' credit performance. An allowance for doubtful accounts may be
established based upon factors surrounding the credit risk of specific accounts,
historical trends and other information.
-39-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
Currency Risk
Currency risk is the risk to the Company's earnings that
arise from fluctuations of foreign exchange rates and the degree of volatility
of these rates. For the container operations the customers and suppliers are
located in Canada and there is limited exposure to currency risk. The
EKO-FLOR operations will have international customers and the sale of product
may be negotiated in a currency other than the Canadian functional
currency. Purchase of equipment and supplies will also be sourced
from foreign sources. Because of current limited activity in the
EKO-FLOR operations fluctuations in the foreign exchange rates will not be
significant.
Interest rate risk
The Company has almost ten years remaining on a term loan
which is variable based on current prime rate An increase/decrease of
3% in the interest rates would increase/decrease the annual interest expense by
approximately $5,800.
Liquidity risk
The Company manages its liquidity risk by preparing and
reviewing actual and forecasted cash flows. There are no assurances
the sources of funds will be available to satisfy current obligations as noted
in Note 2 Going Concern.
|
15.
|
BUSINESS
SEGMENTS
|
The Company operated in two reportable business segments;
Container Terminal, and EKO-FLOR. The Container Terminal operations
are organized as Conforce 1 Container Terminals, Inc., a 50.1% owned subsidiary
of the Company. The subsidiary is responsible for all container
terminal operations. EKO-FLOR is organized as Conforce Container
Corporation a 100% owned subsidiary of the Company. This subsidiary
is responsible for the development, manufacturing and marketing of the Company’s
EKO-FLOR product. Operations to date have been research and
development and an order from one customer.
Business Segments –For the Year Ended March 31,
2009
Container
|
||||||||||||
Terminals
|
EKO-FLOR
|
Consolidated
|
||||||||||
Revenues
|
$
|
1,553,540
|
$
|
346,211
|
$
|
1,899,751
|
||||||
Cost of services and product
revenue
|
813,224
|
384,730
|
1,197,954
|
|||||||||
Interest expense
|
25,304
|
7,888
|
33,192
|
|||||||||
Amortization of long lived
assets
|
22,447
|
130,528
|
152,975
|
|||||||||
Income tax expense
|
12,690
|
-
|
12,690
|
|||||||||
Other expenses
|
654,123
|
214,192
|
868,315
|
|||||||||
Minority Interest
|
12,855
|
-
|
12,855
|
|||||||||
Net income (loss)
|
$
|
12,897
|
$
|
(391,127
|
)
|
$
|
(378,230)
|
Total Assets, March 31, 2009
Container
Terminals
|
$
|
353,966
|
||
EKO-FLOR
|
734,401
|
|||
Consolidated Total Assets
|
$
|
1,088,367
|
For the year ended March 31, 2009, 95% of the Container
Terminal revenue was generated by three major customers and 100% of the EKO-FLOR
revenue was generated from a single customer.
-40-
Conforce International, Inc.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the years ended March 31, 2009 and 2008 |
Business Segments –For the Year Ended March 31, 2008
(restated)
Container
|
||||||||||||
Terminals
|
EKO-FLOR
|
Consolidated | ||||||||||
Revenues
|
$
|
2,364,335
|
$
|
-
|
$
|
2,364,335
|
||||||
Cost of services and product
revenue
|
1,274,111
|
-
|
1,274,111
|
|||||||||
Interest expense
|
25,284
|
-
|
25,284
|
|||||||||
Amortization of long lived
assets
|
29,673
|
-
|
29,673
|
|||||||||
Income tax expense
|
73,594
|
-
|
73,594
|
|||||||||
Other expenses
|
758,316
|
249,060
|
1,007,376
|
|||||||||
Minority interest
|
101,475
|
-
|
101,475
|
|||||||||
Income (Loss)
|
$
|
101,882
|
$
|
(249,060
|
)
|
$
|
(147,178)
|
Total Assets, March 31, 2008
Container Terminals
|
$
|
930,041
|
||
EKO-FLOR
|
-
|
|||
Consolidated Total
Assets
|
$
|
930,041
|
For the year ended March 31, 2008, 95% of the Container
Terminal revenue was generated by three customers.
|
16.
|
CHANGES IN NON-CASH WORKING
CAPITAL
|
2009
|
2008
|
|||||||
(restated)
|
(restated)
|
|||||||
Accounts receivable
|
$ | 219,708 | $ | (332,171 | ) | |||
Inventory
|
(71,847 | ) | - | |||||
Non-current assets
|
- | 4,132 | ||||||
Accounts payable and accrued
liabilities
|
176,808 | 148,558 | ||||||
Income taxes payable
|
45,541 | 53,550 | ||||||
Deferred rent
|
13,374 | 29,721 | ||||||
$ | 383,584 | $ | (96,210 | ) |
|
17.
|
COMPARATIVE
STATEMENTS
|
The restated comparative figures have been reclassified to
conform to the current year’s presentation.
-41-